Public Finance Problems and Use of Artificial Intelligence: Opportunities and Challenges in Pakistan

Abstract

Pakistan’s Public Finance Management (PFM) system faces deep-rooted inefficiencies which include low tax collection, fragmented data systems, and weak transparency. These structural challenges have led to exiguity of fiscal space and eroded public trust in governance. This paper aims to address such structural intrackabilities by examining the potential role of Artificial Intelligence (AI) and using Estonia’s digital governance model as a comparative benchmark. The study adopts a qualitative and analytical approach as a methodology. It draws on secondary data, international policy documents, and case evidence. It also employs a SWOT analysis and a comparative case study of Estonia to assess Pakistan’s readiness for AI adoption in PFM. The scope covers four core PFM functions encompassing budgeting, taxation, auditing, and transparency. It assesses potential applications of AI such as predictive analytics, anomaly detection, and digital citizen services. The findings indicate that AI could enhance Pakistan’s tax-to-GDP ratio by 3% while improving annual fiscal gains up to PKR 900 billion. It can also aid in improving fiscal transparency by reducing fraud-related losses by more than PKR 200 billion. Comparably, implementation costs are estimated at only PKR 700 billion over a decade. Thus, making the projected return on investment over 25 times the cost. However, barriers such as rudimentary ICT infrastructure, siloed governance, and weak regulatory frameworks must be addressed. The paper concludes that AI is not a magic wand rather it is a strategic enabler. AI revolution in Pakistan can be achieved by adopting a phased roadmap. Focus must be kept on building digital infrastructure, trained manpower and creating ethical safeguards. AI tools can catalyze governance modernization in Pakistan and its ramifications transcend beyond efficiency gains. It underscores AI’s potential to fortify fiscal justice and reinvigorate the social contract between state and the society.