By Abdul Ghani

Pakistan significantly improved its fiscal position during FY2025-26, with the budget deficit narrowing to 1.1% of GDP during July-April as stronger revenue collection, prudent expenditure management and lower debt servicing costs strengthened the country's macroeconomic stability.

According to the Finance Division's Monthly Economic Update & Outlook (June 2026), the overall fiscal deficit stood at Rs1.35 trillion, or 1.1% of GDP, during the first 10 months of FY2025-26, compared with Rs3.63 trillion, or 3.2% of GDP, during the corresponding period last year. The improvement reflects continued fiscal consolidation and better management of public finances.

The report states that Pakistan also recorded a primary surplus of 3.5% of GDP, equivalent to Rs4.38 trillion, during July-April FY2025-26, compared with 3.2% of GDP or Rs3.70 trillion a year earlier. A higher primary surplus indicates stronger fiscal performance before accounting for interest payments on public debt.

According to the report, improved revenue mobilisation played a key role in strengthening fiscal outcomes. Net federal revenue increased by 5.8% to Rs8.60 trillion during July-April FY2025-26, supported by growth in both tax and non-tax revenues. Tax revenues increased by 10.3%, while non-tax revenues rose by 6% over the same period last year.

The Federal Board of Revenue (FBR) also maintained strong tax collection momentum. During July-May FY2025-26, FBR collected Rs11.23 trillion, representing a 9.7% increase compared with the corresponding period of the previous fiscal year. The growth was driven by both direct and indirect taxes, which increased by 13% and 6.7%, respectively.

Among indirect taxes, sales tax receipts increased by 7.7%, federal excise duty collections rose by 10.7%, while customs duties recorded a 1.4% increase. According to the Finance Division, the broad-based improvement in tax revenues reflects stronger economic activity, better  compliance and the impact of ongoing revenue reforms.

The report highlights that expenditure management also contributed significantly to fiscal consolidation. Total government expenditure declined by 9.9% to Rs11.62 trillion during July-April FY2025-26. The reduction was mainly due to a 10.3% decline in current expenditure, largely driven by a substantial 21.9% fall in debt servicing (mark-up) payments.

Despite tighter control over current spending, the government continued to prioritise development activities. According to the report, development expenditure increased by 1.2%, indicating that fiscal consolidation was achieved without reducing investment in priority development programmes. This approach enabled the government to contain non-development expenditure while maintaining support for infrastructure and other growth-oriented projects.

The Finance Division notes that prudent fiscal management remains central to the government's broader economic strategy. Effective expenditure control, improved revenue mobilisation and sustained fiscal discipline have strengthened macroeconomic stability while creating greater fiscal space for development spending and social protection initiatives.

According to the report, the government intends to build on these gains through continued fiscal reforms under the FY2026-27 budget. Strengthening revenue collection, broadening the tax base, maintaining expenditure discipline and improving the efficiency of public spending are expected to remain key priorities for supporting sustainable economic growth and preserving macroeconomic stability.

Credit: INP-WealthPk