Pakistan posts first-ever half-year fiscal surplus in FY26

Pakistan recorded a fiscal surplus on a half-year basis for the first time in its history during the first half of fiscal year 2026, helped by a sharp drop in expenditures and lower interest costs, according to a report by brokerage firm Topline Securities.

The country posted a fiscal surplus of PKR 542 billion, equivalent to 0.4% of gross domestic product, in the July-December period of FY26, compared with a deficit of PKR 1.5 trillion or 1.3% of GDP, in the same period last year, the report said.

The improvement was driven by a 10% year-on-year decline in total government spending, while total revenues grew 9%, Topline Securities said.

Within expenditures, interest, or markup, payments fell 31%, led by a 33% reduction in interest costs on domestic debt. In contrast, interest expenses on external debt rose 1.6%.

Pakistan’s primary balance, which excludes interest payments, recorded a surplus of PKR 4.1 trillion or 3.2% of GDP, in the first half of FY26, compared with PKR 3.6 trillion, or 3.1% of GDP, a year earlier.

The primary surplus was well above the International Monetary Fund’s target of 2.6% of GDP for the full fiscal year, the report said.

Despite the strong half-year performance, the fiscal position weakened in the second quarter. Pakistan posted a fiscal deficit of 1.2% of GDP in the October0December quarter, compared with a deficit of 3.0% of GDP in the same period last year.

The primary balance in the quarter remained in surplus at 0.5% of GDP, up from 0.3% a year earlier, according to Topline Securities.

Interest expenses during the second quarter totaled PKR 2.2 trillion, down 43% from a year earlier amid lower interest rates.

On a quarter-on-quarter basis, however, interest costs rose 59% due to seasonal factors and debt maturities that typically fall in the December and June quarters, the report said.

Subsidies and grants increased sharply, rising 42% year-on-year and 91% quarter-on-quarter to PKR 838 billion. The increase was largely driven by higher spending on flood relief and rescue operations, Topline Securities said.

Amid the budget surplus in the first half, the government retired PKR 575 billion in domestic debt, while borrowing PKR 34 billion in external debt during the period, according to the report.