By Farooq Awan

Pakistan recorded a fiscal surplus of 0.4 percent of GDP during the first half of FY26, while the primary surplus surged to Rs4,105.5 billion, reflecting improved revenue performance and a sharp reduction in debt servicing costs, according to the Monthly Economic Update & Outlook February 2026 released by the Ministry of Finance.

The fiscal outcome marks a significant development in the country’s public finance position during July-December FY26. The improvement was supported by a notable decline in interest payments, which fell by 30.7 percent during the period under review. The reduction in markup expenditures eased pressure on current spending and contributed directly to the overall surplus.

Revenue collection continued to show growth momentum. The Federal Board of Revenue (FBR) collected Rs7,176.9 billion during July-January FY26, registering a 10.5 percent increase compared to the same period of the previous fiscal year. The steady rise in tax revenues strengthened the government’s fiscal position and supported consolidation efforts during the first half of the year.

On the expenditure side, lower interest expenditures in costs kept current check, while development spending expanded significantly. Public development expenditures rose by 43.2 percent in July-December FY26, with provinces playing a major role in accelerating spending. The increase indicates that fiscal consolidation during the period coincided with higher allocations toward development and public investment.

The combination of stronger revenue collection and reduced debt servicing created fiscal space, enabling the government to achieve both a primary surplus and an overall surplus during the first half of FY26. The primary balance, which excludes interest payments, reached Rs4,105.5 billion, underscoring the impact of expenditure rationalization alongside revenue growth.

The report highlights that fiscal performance during the review period reflects improved budgetary management within the broader macroeconomic stabilization framework. The surplus outcome, supported by tax revenue growth and a decline in markup payments, suggests progress in strengthening public finances during the ongoing fiscal year.

The increase in development spending alongside fiscal consolidation indicates a shift toward supporting economic activity while maintaining budgetary discipline. The first-half fiscal indicators present a picture of improved fiscal balance, driven by higher revenues, lower interest costs, and managed expenditures as FY26 advances.

Credit: INP-WealthPk