By Moaaz Manzoor

Pakistan achieved a primary surplus of Rs4.09 trillion, equivalent to 3.2% of GDP, during July-March FY2025-26, up from Rs3.47 trillion or 3.0% of GDP in the corresponding period of the previous fiscal year, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The achievement represents one of the strongest primary balances recorded in recent years and reflects continued progress in fiscal consolidation, stronger revenue mobilization and improved expenditure management.

A primary surplus occurs when government revenues exceed expenditures excluding interest payments on public debt. Economists consider it one of the most important indicators of fiscal health because it reflects the government's ability to finance its operations without relying excessively on additional borrowing.

According to the survey, the improvement in the primary balance was largely driven by lower markup payments, controlled current expenditures, improved tax collection and continued provincial support for fiscal consolidation.

The survey notes that Pakistan's fiscal performance improved considerably during FY2025-26 despite challenges posed by floods, global economic uncertainty and regional geopolitical tensions.

Total government revenues increased by 10.7% to Rs14.8 trillion during July-March FY2025-26. Tax revenues rose by 11.3% to Rs10.17 trillion, while non-tax revenues increased by 9.5% to Rs4.63 trillion. The broad-based growth in revenue collection provided a solid foundation for strengthening the fiscal position.

Federal Board of Revenue collections increased by 10.1% to Rs9.31 trillion during the period under review. Provincial tax revenues recorded even stronger growth of 25.8%, reaching Rs860.7 billion. Higher petroleum levy receipts and larger transfers of State Bank of Pakistan profits also supported revenue growth.

On the expenditure side, the government benefited from a substantial decline in debt servicing costs. Markup payments fell by 23.2% to Rs4.95 trillion compared with the same period of the previous fiscal year. This reduction significantly improved fiscal space and contributed directly to the higher primary surplus.

The survey attributes the decline in debt servicing costs to improved macroeconomic conditions, easing interest rates and prudent debt management policies implemented during the fiscal year.

Total expenditure declined by 4.2% to Rs15.66 trillion, while current expenditure decreased by 2.2% to Rs14.27 trillion. These developments helped strengthen fiscal discipline without constraining economic activity.

At the same time, the government maintained a strong focus on development and social sector spending. Development expenditure increased by 26.8% to Rs1.95 trillion during July-March FY2025-26. Provincial development spending expanded by 31.6%, while federal development spending increased by 7.6%.

The survey highlights that fiscal consolidation was achieved alongside continued support for vulnerable segments of society. Pro-poor expenditures reached Rs4.66 trillion during the period, covering education, health, social welfare, infrastructure development, disaster management and environmental programmes.

Pakistan's improved fiscal performance coincided with broader macroeconomic stabilization. The economy grew by 3.7% during FY2025-26, supported by growth in agriculture, industry and services. Large-scale manufacturing expanded by 6.11%, while private investment increased by 12.8%, strengthening the revenue-generating capacity of the economy.

The survey notes that a stronger primary surplus also contributed to improved public debt management. Public debt growth remained contained at 3.4% during the first nine months of FY2025-26 compared with 6.7% in the same period last year. Fiscal discipline, prudent borrowing and active debt management helped improve several debt sustainability indicators.

According to the Ministry of Finance, the government remains committed to maintaining fiscal discipline through enhanced revenue mobilization, expenditure rationalization and structural reforms aimed at strengthening long-term fiscal sustainability.

The survey emphasizes that sustained primary surpluses are important for reducing debt vulnerabilities, lowering future borrowing requirements and creating fiscal space for development spending and economic growth.

Credit: INP-WealthPk