Pakistan slashes FY26 fiscal deficit 46% to Rs3.3tr

August 13, 2026 (MLN): Pakistan closed FY26 with a significant fiscal turnaround, moving away from years of recurring fiscal stress toward stronger public finances, stability, and sustainable growth.

The fiscal deficit narrowed to Rs3.313tr, equivalent to 2.6% of GDP, the lowest level in 22 years, down 46%YoY from Rs6.168tr (5.4% of GDP) in FY25. The improvement extends a broader consolidation trend, with the fiscal deficit narrowing by 5.2 percentage points of GDP over the past three years.

The primary balance posted a surplus of Rs3.634tr, or 2.9% of GDP, the highest primary surplus in at least 26 years, up 34%YoY from Rs2.719tr (2.4% of GDP) in FY25.

FY26 marks the third consecutive year of primary surpluses, reflecting sustained fiscal discipline on the expenditure side even as debt-servicing costs remained elevated for much of the period.

On the revenue side, total collections rose 10%YoY to Rs19.774tr (15.6% of GDP), driven primarily by a 12%YoY increase in tax revenue to Rs14.219tr.

Within tax revenue, direct taxes grew 14%YoY to Rs6.586tr, sales tax collections rose 9%YoY to Rs4.254tr, customs duties increased 4%YoY to Rs1.331tr, and federal excise duty rose 10%YoY to Rs840bn. Provincial tax collections grew 24%YoY to Rs1.209tr.

Non-tax revenue rose 5%YoY to Rs5.555tr, with growth led by petroleum levy collections, up 28%YoY to Rs1.567tr, alongside gains in royalties on oil and gas and dividend receipts. This was partly offset by a 7%YoY decline in surplus profit transfers from the State Bank of Pakistan.

Total expenditure declined 4%YoY to Rs23.087tr (18.2% of GDP), from Rs24.166tr (21.1% of GDP) in FY25. Current expenditure fell 4%YoY to Rs20.686tr, primarily on account of a 22%YoY drop in mark-up payments to Rs6.948tr as monetary easing reduced the cost of domestic debt servicing. Defence expenditure rose 18%YoY to Rs2.588tr.

Development expenditure and net lending increased 10%YoY to Rs3.254tr, keeping the development-to-GDP ratio steady at 2.6%.

On financing, the domestic sector remained the primary source of deficit financing, though its share declined as external inflows picked up. Net external financing rose 90%YoY to Rs1.178tr, while net domestic financing fell 61%YoY to Rs2.136tr from Rs5.549tr in FY25.

Alongside the narrower deficit, debt growth slowed to a 20-year low over the year, with both the debt-to-GDP ratio and the interest burden on the budget declining.

The improvement in fiscal metrics was recognized by S&P Global Ratings, which upgraded Pakistan's sovereign rating to 'B' with a 'Stable' outlook, citing stronger fiscal consolidation and improving sovereign fundamentals.

Summary of consolidated fiscal operations (FY26 vs FY25)

Copyright Mettis Link News