Abdul Ghani

Pakistan achieved a remarkable milestone in fiscal management during FY2025, recording its lowest fiscal deficit in eight years and its highest primary surplus in 24 years.

These achievements, highlighted in the Monthly Economic Update & Outlook – September 2025 released by the Finance Division, underline the government’s sustained efforts toward fiscal consolidation and improved public finance discipline.

According to the report, effective revenue mobilization and prudent expenditure management created the fiscal space for higher development spending in FY2025. This strengthened fiscal base carried through to the first two months of FY2026, sustaining a steady trajectory in performance.

During July FY2026, net federal revenues rose by 7.7 percent to Rs.440 billion. This increase was largely driven by a 23.9 percent growth in non-tax revenues, complemented by a 14.8 percent rise in tax revenues. Higher non-tax revenues stemmed mainly from increased receipts through petroleum levies, dividends from public enterprises, and defense-related income.

The Federal Board of Revenue (FBR) also reported significant progress. Its net tax collection expanded by 14.1 percent to Rs.1,661.5 billion during July–August FY2026, compared to Rs.1,456.1 billion during the same period last year. On a monthly basis, August 2025 collections stood at Rs.904 billion, up from Rs.796 billion in August 2024.

On the expenditure side, the government’s outlays in July FY2026 increased by 28.8 percent to Rs.990.1 billion compared to Rs.768.9 billion last year. Despite the rise in expenditures, the fiscal deficit was successfully contained at just 0.2 percent of GDP. As a result of these measures, the primary surplus—a measure that excludes interest payments—improved substantially, reaching Rs.228.9 billion (0.2% of GDP) in July FY2026, compared to Rs.107.1 billion (0.1% of GDP) during the same month last year.

The Finance Division emphasized that the government remains committed to building on these gains in FY2026 by continuing effective resource mobilization and prudent spending policies. Economists believe that this achievement, coupled with steady revenue growth, will enhance the country’s ability to fund infrastructure and social development programs without undermining fiscal stability.

However, challenges remain. Higher interest payments on public debt and unforeseen expenditures due to climate disasters, such as the July floods, could pressure the fiscal balance in the coming months. The government’s strategy of increasing non-tax revenue reliance, particularly through petroleum levies, also raises questions about sustainability if global energy prices fluctuate.

Nevertheless, the Finance Division stressed that the consolidation gains achieved in FY2025 —and sustained into FY2026—have strengthened Pakistan’s fiscal foundation, paving the way for better macroeconomic stability and sustainable development in the medium term.

Credit: INP-WealthPk