ISLAMABAD: Pakistan’s fiscal deficit narrowed sharply during the first nine months of the fiscal year 2025-26, supported by strong provincial cash surplus, increased petroleum levy collections and a substantial reduction in debt service expenditure, according to official data released by the Ministry of Finance.
Fiscal operations data for July-March showed that the federal fiscal deficit stood at Rs856 billion or 0.7 percent of GDP, compared to Rs2.97 trillion or 2.6 percent of GDP recorded during the same period last year.
The latest figures indicate one of the lowest fiscal gaps recorded in decades and reflect improved fiscal management under the ongoing economic stabilization efforts linked to the IMF program.
The fiscal position during the first quarter of the fiscal year was initially in surplus before gradually narrowing and finally turning into deficit by the end of March.
Officials said the biggest contribution came from the provinces, which generated a combined surplus of Rs1.636tr during the first three quarters of the fiscal year, exceeding the annual target set under the IMF’s Extended Fund Facility.
Punjab recorded the highest provincial surplus of Rs824 billion, followed by Sindh at second place with Rs441 billion. Khyber Pakhtunkhwa and Balochistan recorded surpluses of Rs253 billion and Rs118 billion, respectively.
Petroleum levy collections also increased sharply during the period, reaching Rs1.205 trillion, up 45 percent from less than Rs835 billion in the same period last year. The levy remained a major source of non-tax revenue despite continued pressure on fuel prices.
Meanwhile, interest payments fell by about 23 percent to Rs 4.95 trillion, providing significant relief to the federal budget after last year’s high borrowing costs.
The government also maintained a primary surplus of Rs 4.1 trillion during July-March, slightly higher than the same period last year.
However, the data pointed to continued weaknesses in broad revenue generation. The revenue-to-GDP ratio declined to 11.4 percent, while tax revenue fell to 7.8 percent of GDP.
Sales tax and customs duty collections remained under pressure, although provincial tax revenues improved marginally during the period.
On the expenditure side, defence expenditure and subsidy payments increased in absolute terms and as a share of GDP. Defence expenditure rose to Rs 1.69 trillion while subsidies rose to Rs 632 billion.
Economists believe the latest fiscal data reflects improving economic stability and easing debt pressures, but caution that long-term fiscal stability will depend on strong tax collection, spending reforms and continued economic growth.
