ISLAMABAD: Pakistan recorded its lowest fiscal deficit in nearly three decades during the first nine months of the current fiscal year, driven by massive petroleum levy collections, strong provincial cash surpluses, and a sharp reduction in interest payments, according to official fiscal operations data released by the Ministry of Finance.
The fiscal deficit stood at just Rs856 billion, equivalent to 0.7 percent of GDP, during July-March FY2025-26, compared to Rs2.97 trillion or 2.6 percent of GDP during the same period last year — reflecting an impressive 71 percent improvement.
The achievement came despite weaker revenue-to-GDP ratios and increased spending in key areas such as defence and subsidies. The government had initially recorded a budget surplus of Rs2.1 trillion (1.6pc of GDP) in the first quarter, which gradually narrowed to Rs542bn by mid-year before turning into a deficit by the end of the third quarter.
A major contributor to the improved fiscal position was the petroleum development levy (PDL), which surged by 45 percent to Rs1.205 trillion during July-March, compared to less than Rs835bn collected during the same period last year. The collection is now expected to significantly exceed the annual target of Rs1.468tr amid elevated fuel prices linked to ongoing geopolitical tensions and the US-Israel conflict involving Iran.
Another key factor was the strong fiscal performance of the provinces under the IMF’s $7 billion Extended Fund Facility (EFF). The four provinces collectively posted a cash surplus of Rs1.636tr during the first nine months of the fiscal year, exceeding the full-year target of Rs1.464tr by Rs172bn.
Punjab contributed the largest provincial surplus of Rs824bn, followed by Sindh with Rs441bn, Khyber Pakhtunkhwa with Rs253bn, and Balochistan with Rs118bn.
Meanwhile, interest payments declined sharply by nearly Rs1.5tr to Rs4.948tr from Rs6.44tr a year earlier, mainly due to easing debt servicing costs and the lagged impact of previous monetary policy adjustments. The State Bank of Pakistan also continued to generate strong profits due to historically high interest rates.
Pakistan’s primary surplus — excluding interest payments — improved slightly to 3.2 percent of GDP during July-March from 3 percent a year ago. In absolute terms, the primary surplus rose to Rs4.1tr from Rs3.468tr.
Despite the encouraging fiscal indicators, the data highlighted persistent structural weaknesses in revenue generation and expenditure management.
The overall revenue-to-GDP ratio declined to 11.4 percent from 11.7 percent last year, while tax revenues fell to 7.8 percent of GDP from 8 percent. Non-tax revenues also slipped to 3.6 percent from 3.7 percent.
Direct taxes remained stagnant at 3.6 percent of GDP, while sales tax collection declined to 2.4 percent from 2.5 percent. Customs duty collection also fell to 0.7 percent of GDP compared to 0.8 percent last year. However, provincial tax collection improved slightly to 0.7 percent of GDP.
On the expenditure side, overall spending declined to 12.1 percent of GDP from 14.2 percent, largely due to lower debt servicing costs. However, defence expenditure increased to Rs1.69tr from Rs1.423tr last year, while subsidy spending rose to Rs632bn compared to Rs466bn during the same period last year.
According to the Ministry of Finance, Federal Board of Revenue (FBR) collections reached Rs9.306tr during July-March, marking an increase of Rs853bn or 10 percent over the previous year. Provincial tax revenues also recorded strong growth of 26 percent, reaching Rs861bn — well above assigned targets.
Story by Khaleeq Kiani
