Pakistan’s Fiscal Problem (Part II): The Cost of Not Fixing Procurement

Pakistan does not just spend too much but it can also buy more efficiently. The Federal Budget 2025–26 places total federal expenditure above Rs 17.5 trillion. Most of this is locked into debt servicing, pensions and running of civil government. That leaves limited room for headline spending cuts. But when the federal government purchases thousands of vehicles, medicines, IT systems, fuel supplies and office goods every year, the real fiscal question is not how much it spends. It is how intelligently it buys.

Using provincial expenditure patterns as a proxy, procurement spending represents roughly 23 to 24 percent of total public expenditure. Applying this ratio to the federal budget suggests that federal procurement alone likely exceeds Rs 4 trillion annually. Across the whole government, including provinces, total public procurement plausibly approaches Rs 7 to 8 trillion each year.

When the state buys at this scale, even modest inefficiencies translate into enormous fiscal losses.

Research shows that public procurement systems frequently generate significant waste. A detailed study of Italian public bodies finds large price variation for identical goods across agencies, with most of the waste attributed not to corruption but to inefficient purchasing practices and weak incentives (Bandiera, Prat & Valletti, 2009). The implication is clear. Poor procurement design leads to systematic overpayment.

Evidence from broader international reviews reinforces this. A World Bank review of procurement reforms finds that centralized procurement and framework agreements have delivered substantial savings in multiple countries, with well-implemented reforms often reducing prices by 5 to 10 percent and in some cases much more (Fazekas & Blum, 2021). OECD evidence similarly shows that aggregating demand and using framework contracts strengthens bargaining power and lowers prices (OECD, 2016).

These are not minor administrative tweaks. Because governments typically spend 12 to 15 percent of GDP through procurement channels, even small percentage savings across that base generate significant fiscal space (Fazekas & Blum, 2021).

Pakistan’s procurement system remains highly fragmented. Ministries and attached departments purchase similar goods independently. One department buys vehicles at one price. Another buys comparable vehicles at a higher price. Hospitals procure medicines separately. Universities and agencies buy IT equipment independently. Offices repeatedly purchase furniture and stationery without pooling demand.

No large private corporation would operate this way. When purchases are fragmented, volumes are smaller and negotiating power weakens. Suppliers can charge different prices across departments. When demand is aggregated, economies of scale emerge. Bulk purchasing allows the government to negotiate lower unit prices, standardize specifications and reduce transaction costs.

If the federal government consolidated procurement for high-volume goods such as vehicles, fuel, medicines, IT equipment and office supplies, it would significantly strengthen its bargaining position. Volume discounts alone can generate measurable savings, as documented in OECD countries (OECD, 2016). A federal framework contract system would allow ministries to purchase from pre-negotiated agreements instead of conducting repetitive tenders for identical items.

Procurement rules must also shift from procedural compliance to value for money. The lowest initial bid is not always the cheapest contract over time. Poor quality leads to delays, renegotiations and maintenance costs. International best practice increasingly uses life-cycle costing and quality-based evaluation to reduce total project costs (Fazekas & Blum, 2021).

Transparency and benchmarking also matter. A centralized database of historical prices and supplier performance would allow procurement officials to compare bids against established norms. Countries that have implemented price benchmarking systems report reductions in overpricing and improved contract outcomes (OECD, 2016).

Finally, procurement must be professionalized. Training officials, standardizing bidding documents and strengthening post-award audits reduce waste and improve outcomes. Governance improvements in procurement are consistently associated with better spending efficiency (Fazekas & Blum, 2021).

The fiscal arithmetic is straightforward. If federal procurement is roughly Rs 4 trillion annually, even a conservative 10 percent efficiency gain would yield around Rs 400 billion in savings. At 15 percent, savings approach Rs 600 billion. Extending similar improvements across provincial procurement would multiply this impact (Figure 1).

Figure 1

Pakistan does not need blunt austerity to reduce expenditure. It needs smarter purchasing. When the government is one of the largest buyers in the economy, procurement reform is not a technical adjustment. It is one of the most powerful fiscal reforms available.

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References

Bandiera, O., Prat, A., & Valletti, T. (2009). Active and Passive Waste in Government Spending. American Economic Review, 99(4), 1278–1308.
https://www.cerp.org.pk/wp-content/uploads/2023/06/Bandiera-et-al-2017-final-report_1.pdf

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Fazekas, M., & Blum, J. R. (2021). Improving Public Procurement Outcomes: Review of Tools and the State of the Evidence Base (Policy Research Working Paper No. 9690). World Bank Group.
https://documents1.worldbank.org/curated/en/656521623167062285/pdf/Improving-Public-Procurement-Outcomes-Review-of-Tools-and-the-State-of-the-Evidence-Base.pdf

Organisation for Economic Co-operation and Development (OECD). (2016). Public Procurement for Sustainable and Inclusive Growth. OECD Publishing.
https://www.ospi.es/images/documentos/archivos/Public_Procurement.pdf 

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