By Farooq Awan

Pakistan’s fiscal deficit narrowed significantly during the current fiscal year, reflecting improved revenue performance and controlled expenditure.

According to the “Monthly Economic Update & Outlook April 2026” released by the Finance Division and available with Wealth Pakistan, the fiscal deficit stood at 0.1% of GDP (Rs161.2 billion) during July-February FY2026, compared to 2.2% of GDP (Rs2,524.5 billion) in the same period last year.

The data shows a substantial reduction in the fiscal gap, indicating improved fiscal management over the period. The decline in the deficit was supported by both an increase in revenues and a reduction in overall expenditure.

Net federal revenues increased by 10.1% to Rs7,463.1 billion during July-February FY2026. This growth was driven by increases in both tax and non-tax revenues, which rose by 10.6% and 7.7%, respectively.

Tax revenue growth was supported by both direct and indirect taxes. Direct taxes increased by 12.4%, while indirect taxes recorded a growth of 7.9%. Within indirect taxes, sales tax increased by 8.5%, customs duties by 3.0%, and federal excise duty by 13.3%, contributing to overall revenue expansion.

On the expenditure side, total federal expenditure declined by 10.9% to Rs9,232.3 billion during the period. The reduction was mainly driven by a decline in current expenditure, which fell by 11.4%.

The report highlights that the decrease in current expenditure was largely due to a 25.0% reduction in markup payments, which significantly eased the government’s fiscal burden. This reduction played a key role in improving the overall fiscal balance.

In contrast to current expenditure, development spending continued to increase. Public Sector Development Programme (PSDP) expenditures rose by 4% during the period, indicating continued investment in infrastructure and development projects.

The improvement in fiscal indicators is further reflected in the primary balance. The report shows that the primary surplus increased to 3.3% of GDP (Rs4,319.0 billion) during July-February FY2026, compared to 3.0% of GDP (Rs3,452.1 billion) in the same period last year.

The Federal Board of Revenue (FBR) also showed improved performance. During July-March FY2026, tax collection increased by 10.1% to Rs9,305.9 billion, compared to the same period last year.

The data indicates that fiscal consolidation has been driven by both stronger revenue collection and tighter expenditure management, as reflected in the official statistics.

The report highlights that improved fiscal management has contributed to strengthening macroeconomic stability during FY2026, with a notable reduction in the fiscal deficit and sustained primary surplus.

Credit: INP-WealthPk