Pakistan’s economic durability is increasingly under strain as a mounting debt burden continues to weigh heavily on the country’s financial stability. In the absence of an equitable and sufficiently broad tax system, banks are being called upon time and again to shoulder the responsibility of propping up fiscal accounts—a situation that industry leaders warn is neither healthy nor sustainable.
Speaking in an interview with VCast Online, Zafar Masud, Chairman of the Pakistan Banks’ Association (PBA), underscored the urgent need for comprehensive tax reforms. Masud argued that Pakistan’s overdependence on the banking sector for fiscal support is putting unnecessary pressure on financial institutions, potentially crowding out their ability to direct credit toward productive areas of the economy. According to him, unless immediate steps are taken to expand the tax net and distribute the burden more fairly, the long-term growth trajectory of the country will remain at risk.
Masud highlighted how the country’s debt dynamics have been deteriorating, with domestic and external obligations rising amid a backdrop of sluggish revenue mobilization. The repeated resort to banks for government borrowing has intensified over the years, effectively making the banking sector a principal financier of the fiscal deficit. This overreliance is distorting credit flows, often at the expense of private sector expansion, which is critical for job creation and economic diversification.
The PBA chairman called on policymakers to pursue a more balanced fiscal approach by introducing structural tax measures aimed at capturing untapped segments of the economy. He stressed that widening the tax base is essential not only for raising revenues but also for promoting fairness in the system. At present, a significant portion of the tax load falls on a narrow pool of compliant entities, while large swathes of economic activity remain outside formal documentation.
Masud pointed out that by consistently leaning on banks to help stabilize government finances, Pakistan risks undermining the sector’s broader role in fueling entrepreneurial activity and innovation. Financial institutions are designed to channel savings into investments across diverse sectors—tying them too closely to sovereign needs could limit their capacity to finance new industries, SMEs, and technology-driven ventures that are vital for long-term economic resilience.
The conversation also touched on the broader implications of maintaining a fragile fiscal framework. Without substantial tax reforms, Pakistan may continue to struggle with external vulnerabilities, particularly as global economic conditions fluctuate. Masud warned that unchecked debt accumulation paired with an insufficient revenue base could expose the economy to sharper shocks, complicating efforts to maintain exchange rate stability and control inflation.
As Pakistan grapples with these challenges, voices like Masud’s are amplifying the call for a strategic recalibration. Strengthening tax policy and administration to secure more diversified revenue streams is seen by many experts as the cornerstone for building a healthier financial ecosystem. It would enable banks to perform their essential function—driving private investment—without the distortions caused by repeated government borrowing.
In the view of industry insiders, ensuring the sustainability of Pakistan’s economic framework demands that tax reforms move from drawing boards to tangible implementation. Only then can the country hope to achieve robust, inclusive growth that reduces pressure on both banks and taxpayers alike.