Farooq Awan

Pakistan has recorded a rare decline in its public debt, marking the first quarterly reduction in more than five years, supported by stronger revenue generation, restrained spending, and the government’s early repayment of expensive obligations. The development signals a notable improvement in macroeconomic stability as the reform programme continues to take shape.

According to the Monthly Economic Update and Outlook for November 2025, Pakistan’s public debt fell by over Rs1,371 billion during the quarter, reversing a long-standing trend of recurring accumulation. The document notes that the decline was achieved through the “strategic use of surplus funds for the early retirement of costly debt,” a move that eased refinancing pressures and reduced the rollover risks that have weighed heavily on the economy in recent years.

Revenue performance remained encouraging during the first quarter of FY2026. Net federal revenues grew by 2.4 percent to Rs4.12 trillion, driven largely by higher tax mobilisation. The Federal Board of Revenue (FBR) collected Rs3.83 trillion during July–October, reflecting an 11.4 percent increase over last year. Non-tax revenue remained stable at Rs3 trillion, demonstrating improved administrative measures and sustained inflows from the petroleum and dividends-related streams.

On the expenditure side, spending discipline largely held. Total outlays increased by 11.9 percent, but remained aligned with the budgeted path, helping reinforce the fiscal consolidation strategy. As a result, Pakistan posted a fiscal surplus of Rs1.34 trillion during July–September, slightly lower than last year but still considered strong given the effects of inflation and rupee adjustments on expenditure needs.

The primary balance — a crucial indicator for international lenders — strengthened further, rising to Rs3.49 trillion, compared to Rs3.20 trillion during the same period last year. A sustained primary surplus is seen as essential for containing debt risks and signalling reform commitment to external partners.

The report highlights that the country’s stabilisation trajectory has been reinforced by improving external inflows, rising remittances, and a recovering industrial sector. It adds that the government’s continued adherence to fiscal discipline, revenue expansion, and targeted expenditure controls is supporting macroeconomic confidence.

Despite improvements, challenges remain. The current account deficit has widened amid stronger import demand, with global commodity price volatility adding further risks and inflationary pressures likely to persist in the coming months. However, authorities believe that the fiscal gains achieved in early FY2026 will provide a stronger buffer against external shocks.

The government maintains that it will continue pursuing prudent fiscal management, expanding the tax base, and accelerating reforms designed to stabilise the economy, restore investor confidence, and prepare the groundwork for sustainable growth.

Credit: INP-WealthPk