Pakistan fiscal deficit shrinks to 0.7% of GDP

May 12, 2026 (MLN): Pakistan’s fiscal deficit narrowed sharply during the first nine months of FY26, with the budget deficit clocking in at Rs856bn, equivalent to 0.7% of GDP, compared to 2.6% of GDP (Rs3tr) recorded in the same period last year, showing significant fiscal consolidation.

The improvement in fiscal balances was driven by controlled expenditures, lower debt servicing costs, and steady revenue growth during 9MFY26.

On a quarterly basis, the fiscal deficit during 3QFY26 stood at 1.1% of GDP, slightly better than 1.2% recorded in 3QFY25, according to finance division.

During 9MFY26, total expenditures declined by 4% YoY, supporting the overall fiscal improvement.

Interest expenses dropped sharply by 23% YoY to Rs4.95tr, mainly due to lower interest rates and improved debt management measures.

The average Treasury bill (T-bill) yield during 9MFY26 fell to 10.8%, compared to 14.3% in the same period last year, significantly easing the government’s borrowing costs.

Excluding interest payments, government expenditures increased by 8% YoY, while total revenues posted a stronger growth of 11% YoY, highlighting improved revenue mobilization efforts.

The Federal Board of Revenue (FBR) collected Rs9.31tr during 9MFY26, up 10% YoY.

Meanwhile, Pakistan recorded a primary surplus of Rs4.09tr during the period, equivalent to 3.2% of GDP, compared to 3.0% of GDP in the corresponding period last year.

The primary surplus also exceeded the International Monetary Fund (IMF) target of 2.5% of GDP for FY26, indicated strong fiscal discipline under the ongoing economic reform program.

Subsidy and grant expenses declined by 14% YoY and 32% QoQ to Rs574bn, further supporting fiscal consolidation efforts.

In terms of financing, the fiscal deficit was largely financed through domestic sources, including Rs752bn from bank financing and Rs210bn through non-bank financing.

External financing, however, recorded a net retirement of Rs106bn during 9MFY26, reflecting reduced reliance on foreign borrowing.

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