Senate sounds alarm over rising debt as FY27 budget faces sharp scrutiny

The federal budget for FY27 came under intense scrutiny in the Senate on Monday as lawmakers from both the government and opposition benches warned that Pakistan’s rising debt burden is rapidly eroding fiscal space and leaving little room for development spending.

The debate opened with concerns over debt servicing obligations, with lawmakers highlighting that Rs8,054 billion has been allocated for interest payments in the current fiscal framework. Members noted that debt servicing, including both interest and principal repayments, now consumes around 42.8% of the federal budget.

Leader of the Opposition in the Senate Raja Nasir Abbas said the country’s debt trajectory was pushing it towards severe economic vulnerability. He said public debt had surged to Rs97 trillion in the last four years, compared to Rs44 trillion over a broader historical period, and warned that rising liabilities were placing Pakistan in a precarious fiscal position. He added that the government is paying nearly Rs8 trillion annually in interest.

Pakistan Peoples Party (PPP) parliamentary leader in the Senate Sherry Rehman also expressed concern over the growing pressure of debt servicing, warning that it is significantly constraining fiscal space for development, social protection and public investment.

Rehman said nearly 42.8% of the federal budget is being consumed by debt-related obligations. She further pointed to deteriorating public sector finances, stating that losses of state-owned enterprises reached Rs832.848 billion in FY2025, with cumulative losses now at Rs6.563 trillion. She noted that Rs451 billion has been allocated to SOEs in the current budget.

She called for urgent structural reforms, including rationalisation of ministries and public institutions, and urged a shift toward direct taxation and broader tax base expansion to reduce reliance on indirect levies that place a heavier burden on ordinary citizens.

Rehman also raised concerns over rising Petroleum Development Levy collections, warning that excessive dependence on indirect taxation undermines long-term fiscal sustainability. She stressed the need to bring services, trade and retail sectors into the tax net to expand revenue capacity.

On climate spending, she warned that allocations remain inadequate despite Pakistan’s high vulnerability to climate change, arguing that financing priorities do not align with environmental risks even as related levies continue to be collected.

Leader of the Opposition Raja Nasir Abbas criticised the budget as failing to protect economic sovereignty, arguing that it deepens dependence on external financial control. He questioned whether the fiscal plan offers any path toward economic independence and described rising debt as a threat to national stability.

Pakistan Tehreek-e-Insaf (PTI) Senator Mohsin Aziz also criticised the budget, saying it provides no meaningful relief to citizens. He argued that inflation had sharply increased the cost of essential goods, while debt levels had more than doubled in recent years.

Aziz said Pakistan’s debt has risen to Rs97 trillion from Rs44 trillion over the past four years and warned that the country was sliding backwards economically due to political instability. He compared Pakistan’s export performance with regional economies, citing India’s $440 billion exports, and pointed to steep increases in food prices, including wheat flour rising from Rs1,100 to Rs2,600 per maund.

He also criticised the Petroleum Development Levy and rejected the concept of “non-filers,” arguing it is not practiced internationally. He said inefficient subsidy structures, particularly in electricity, were creating distortions that penalise marginal consumers.

The senator called for policy stability, reduced reliance on external financial assistance, and reforms focused on growth and public relief. He urged political dialogue and governance reforms as necessary steps to stabilise the economy.

Lawmakers across party lines emphasised the need for fiscal discipline, broader taxation, and restructuring of public expenditure, warning that without reforms Pakistan risks further deterioration in its debt dynamics and economic stability.