The supplementary budget trap

Pakistan's fiscal strategy and productivity landscape have been marred by years of perpetual firefighting. Beyond the International Monetary Fund's (IMF) latest tranche, a modest 3% GDP growth rate and ambitious petroleum levy targets lies a deeper systemic failure: Pakistan routinely mistakes survival for strategy.

This structural myopia is glaringly evident in the annual budget. With debt servicing consuming Rs8.2 trillion in the last financial year, amounting to nearly half of the entire federal budget, the government is left with virtually no fiscal space for pro-growth investments. Consequently, the Public Sector Development Programme (PSDP) will continue to shrink, condemning future budgets to long-term austerity unless the state plugs its massive revenue shortfall through fundamental tax reforms.

Instead of pursuing genuine reform, however, the state has substituted fiscal discipline with administrative convenience. The Rs91 per litre petroleum levy, collected easily at the pump, has become a lazy alternative to building a modern tax system. With real incomes stagnant for years, there is simply no room left to squeeze compliant existing taxpayers.

However, the executive and the political elite remain unwilling to expend the political capital required to bring the agricultural sector, the sprawling informal economy and corporate tax evaders into the tax net.

The resulting cycle is highly predictable: the formal economy is suffocated, the informal economy thrives, tax bases shrink, and the state inevitably returns to Washington for another IMF lifeline.

This breakdown of discipline is mirrored in parliamentary process as well. Because the government can later pass unlimited supplementary budgets without prior legislative oversight, the initial annual budget bill loses all its institutional meaning.

While supplementary budgets and grants are intended strictly for unforeseen emergencies, they have become the structural norm rather than the exception. This absolute reliance on ex-post facto approvals for year-round spending is the ultimate indicator of deep-seated financial indiscipline.

Institutionalised deception

The numbers expose the scale of this institutional failure. In fiscal year 2022-23, supplementary grants accounted for over 50% of budget spending. In the current fiscal year 2025-26, the government issued a Rs100 billion supplementary grant in March 2026, Rs16 billion in January 2026, and similar grants in December 2025 and November 2025. These continued ex-post approvals show that the practice remains structural, not exceptional.

The Supreme Court settled this matter in 2013. Ruling on constitutional petition No 20/2013, it decreed that supplementary budgets must undergo the same approval process as the annual budget, including prior approval from the National Assembly. This was not a technical recommendation but binding constitutional law.

The government's own petition challenging this ruling was dismissed in 2014, removing all legal obstacles to implementation. Yet nearly a decade later, supplementary grants continue to be issued ex-post facto, with parliament approving expenditure after the money has been spent.

The IMF's Fiscal Transparency Code advises that any significant amendments to total budgeted expenditure should necessitate a supplementary budget beforehand. Advanced international practice requires legislative approval before substantial spending changes occur. Pakistan operates in the opposite direction: the government spends first, asks parliament for permission later, and often expects approval without meaningful scrutiny. Pakistan and Bangladesh are perhaps the only democracies that have not plugged this loophole.

Why does this matter? Because supplementary budgets are how the government routinely exceeds fiscal targets while maintaining the fiction of discipline. The original budget becomes a theatre, with targets announced that everyone knows will be exceeded. The real spending emerges later, through supplementary grants, without the parliamentary scrutiny that accompanied the original debate.

If the government knows supplementary grants will cover overruns, it has no incentive to enforce tax compliance, reduce waste or build genuine fiscal capacity. Why invest in real tax administration when you can simply issue a supplementary grant? Why tighten expenditure control when overspending can be approved retroactively?

The 2026-27 budget will announce fiscal discipline targets. But without closing the supplementary budget loophole, these targets are meaningless. The government requires a constitutional amendment to Article 84 to mandate prior legislative approval for supplementary budgets beyond emergency contingencies capped at 2-3% of total spending. This amendment will never pass as no coalition government is willing to sacrifice the fiscal flexibility that supplementary budgets provide.

Additionally, Pakistan requires an Independent Fiscal Council (IFC), modelled on the Auditor-General's office, but with authority to assess fiscal policy and present nonpartisan analysis of budget proposals. It should have statutory authority to publish quarterly assessments of economic forecasts and fiscal policy, and its reports should be tabled in parliament, providing legislators with independent analysis of budget proposals separate from the finance ministry.

This proposed IFC could be housed within the Pakistan Institute for Parliamentary Services (PIPS) or the Pakistan Institute of Development Economics (PIDE), but in the absence of such institutional capacity, most unbiased fiscal analysis now comes from multilateral agencies like the IMF. This is backwards. Pakistan should not depend on foreign institutions for independent assessment of its own budget. An IFC with statutory authority would provide parliament with its own expert voice, independent of the executive's fiscal claims.

Without these institutional guardrails, the annual budget remains an elaborate charade. Ultimately, this creates a system of absolute executive unaccountability, where parliament has effectively surrendered its most fundamental constitutional prerogative of exercising oversight over the treasury.

THE WRITER IS A CAMBRIDGE GRADUATE AND WORKS AS A STRATEGY CONSULTANT