Pakistan records historic low fiscal deficit of 0.7% of GDP in first nine months of FY2025-26

Pakistan cut its budget deficit to its lowest level on record during the first nine months of fiscal year 2025-26, according to the Economic Survey 2025-26 released on Thursday.

The deficit narrowed to PKR 856.4 billion, or 0.7% of GDP, supported by stronger revenue collection, higher non-tax receipts, controlled spending and falling debt-servicing costs.

What caused Pakistan's fiscal deficit to fall to a historic low?

Pakistan's fiscal deficit dropped from PKR 2.97 trillion, or 2.6% of GDP, in the same period a year earlier to PKR 856.4 billion, or 0.7% of GDP.

The improvement was driven by better revenue mobilization, tighter expenditure management and a sharp decline in markup payments, as lower domestic interest rates and improved debt management reduced borrowing costs.

How did Pakistan's primary surplus perform in FY2025-26?

The primary surplus, which strips out interest payments on debt, rose to PKR 4.09 trillion, or 3.2% of GDP, from PKR 3.47 trillion, or 3.0% of GDP, a year earlier. The survey credited fiscal consolidation for keeping the primary balance on an upward trajectory. This figure also exceeded the IMF's target for the period.

Total government expenditure fell 4.2% year-on-year to PKR 15.66 trillion during July-March FY2026. Current expenditure declined 2.2% to PKR 14.27 trillion. Debt-servicing costs dropped sharply by 23.2% to PKR 4.95 trillion, reflecting lower interest rates and improved debt management.

Did Pakistan increase development spending despite the fiscal squeeze?

Despite tighter controls on current spending, development expenditure and net lending rose 18.7% to PKR 1.83 trillion. Public Sector Development Program (PSDP) expenditures grew 26.8% to PKR 1.95 trillion, pointing to continued government investment in infrastructure and other development priorities.

How did Pakistan's tax and non-tax revenues grow in the first nine months?

Total government receipts increased 10.7% to PKR 14.8 trillion during July-March FY2026. Tax revenues grew 11.3% to PKR 10.17 trillion, while non-tax revenues rose 9.5% to PKR 4.63 trillion. Federal Board of Revenue (FBR) collections climbed 10.1% to PKR 9.31 trillion, with provincial tax revenues recording stronger growth of 25.8% to PKR 860.7 billion.

The survey described Pakistan's overall fiscal performance as encouraging, underpinned by expenditure restraint, stronger revenue generation, provincial budget surpluses and ongoing structural reforms. The government aims to use the improved fiscal position to build long-term sustainability and create space for inclusive economic growth.

The Economic Survey was released a day before the federal government is scheduled to present the FY2026-27 budget in parliament.