This report traces Pakistan’s mounting fiscal challenges from the late 1970s to the early 1990s, revealing a structural imbalance where revenues lagged behind rapidly rising expenditures. With defense and debt servicing consuming nearly 80 percent of current spending, federal deficits widened and IMF program targets were missed. Provincial governments, burdened by stagnant revenues, grew increasingly dependent on federal transfers. In response, the 1991–92 budget introduced landmark tax reforms and a new NFC Award to strengthen resource mobilization and provincial autonomy. Yet, the analysis warns that without sustained political will to enforce direct taxation and expenditure discipline, deficits could escalate to 7.7 percent of GDP by 1995–96, threatening long-term growth and stability.
