The Governance Gap: Distinguishing Administrative Collapse from Fiscal Mismanagement in Pakistan’s Public Sector Regional Focus: Pakistan (2014–2026)

Abstract

This research investigates the causal relationship between structural governance deficits and the emergence of liquidity crises within Pakistan’s public sector. Utilizing a comparative institutional analysis, the study examines the "Governance Gap" through the lens of Public Choice Theory and the Soft Budget Constraint framework. The methodology employs a qualitative multi-case study approach, analyzing fiscal data from selected State-Owned Enterprises (SOEs) and provincial treasury departments during periods of high liquidity stress (2020–2025). Findings indicate that while financial mismanagement characterized by revenue forecasting errors and suboptimal debt-servicing triggered initial cash-flow volatility, it was rarely the primary driver of sustained insolvency. Instead, chronic liquidity shortfalls, particularly the "Circular Debt" phenomenon in the energy sector, are rooted in administrative collapse, defined by executive overrides and the subversion of meritocratic bureaucratic norms. The paper contributes a "Decoupling Matrix" to assist Pakistani policymakers in distinguishing between remediable technical errors and systemic governance pathologies.

Keywords: Pakistan Public Sector, Circular Debt, Institutional Governance, Fiscal Liquidity, IMF Structural Reforms.

https://doi.org/10.5281/zenodo.18350893