Pakistan’s economy has never lacked ambition — but it has often lacked consistency. As Budget 2025–26 looms, one of the most corrosive threats to macroeconomic stability and investor confidence is fiscal policy uncertainty (FPU). While the headlines are often filled with deficits and debt ratios, what flies under the radar is how unpredictable fiscal strategies are systematically eroding the country’s economic foundations.

Fiscal policy uncertainty refers to the unpredictability in taxation, government spending, and fiscal direction over time. In Pakistan, this uncertainty is not episodic; it is structural.

Over the years, frequent mini-budgets, abrupt tax policy revisions, erratic subsidy programs, and unstable revenue projections have embedded unpredictability into the DNA of economic governance. Investors and businesses alike struggle to plan beyond a single fiscal year, let alone a full business cycle.

Recent global research provides a sobering benchmark. According to Azzimonti (2018), fiscal gridlock in the United States has caused output losses of about 1% annually due to shaken investor confidence.

Similarly, Baker, Bloom, and Davis (2016) argue that economic policy uncertainty globally can reduce GDP growth by 0.5% each year, with noticeable impacts on private investment and job creation. In the Eurozone, Born and Pfeifer (2014) find that fiscal uncertainty can lead to 0.6% drops in output due to increased borrowing costs and risk premiums. The broader literature—from Julio and Yook (2012) to Fernandez-Villaverde et al. (2015)—underscores how deeply such uncertainty damages growth, consumption,........

© Business Recorder