Moaaz Manzoor

Pakistan’s federal fiscal position is projected to improve further in fiscal year 2025-26, with the budget deficit expected to narrow to Rs6.501 trillion as authorities continue efforts to strengthen revenue mobilisation and maintain tighter control over expenditures.

The federal budget deficit is forecast at Rs6,501 billion in FY26, down from Rs7,444 billion recorded in FY25, according to the Pakistan Macroeconomic Outlook FY2026 prepared by the Research and Publications Department of the Institute of Cost and Management Accountants of Pakistan (ICMA).

The projected reduction represents a continuation of the consolidation trend observed over the past two years. In FY24, the deficit stood at Rs8,388 billion, before declining to Rs7,444 billion in FY25. The further improvement anticipated for FY26 suggests steady progress in managing fiscal imbalances and aligning public finances with medium-term stability goals.

ICMA notes that the narrowing deficit reflects stronger fiscal discipline rather than short-term adjustments. Enhanced revenue collection mechanisms and tighter oversight of discretionary spending have helped bring the gap between government income and expenditure under better control. The report indicates that improvements in tax administration and broader coverage of the documented economy have strengthened inflows, allowing the government to reduce reliance on excessive spending.

At the same time, expenditure management has played a critical role. Measures aimed at streamlining non-essential outlays and improving efficiency in public spending have supported consolidation efforts. By prioritising essential programmes while restraining avoidable costs, authorities have sought to ensure that available resources are utilised more effectively.

The outlook also highlights that fiscal policy is increasingly aligned with programme targets and longer-term sustainability considerations. Consistent reductions in the deficit help improve predictability in public finances and enhance planning for development and social initiatives. A smaller fiscal gap can also support macroeconomic stability by limiting the need for abrupt adjustments in future years.

ICMA projects that the improvement will extend beyond FY26. The deficit is expected to moderate gradually to around Rs6,476 billion in FY27 and further to Rs6,288 billion in FY28. This medium-term trajectory indicates a sustained commitment to consolidation rather than a one-year correction.

A declining deficit carries broader implications for economic management. Reduced imbalances can ease pressure on public finances, improve investor confidence, and create space for more strategic allocation of resources. Stable fiscal conditions also allow policymakers to focus on long-term development priorities without the constraints imposed by widening shortfalls.

The report suggests that maintaining the consolidation path will depend on continued adherence to disciplined budgeting practices and consistent implementation of reforms. Sustained efforts to strengthen financial management systems and improve transparency are seen as key to preserving gains already achieved.

ICMA’s projections therefore point to a more stable fiscal outlook for FY26, with the expected reduction in the budget deficit reflecting steady improvements in both revenue performance and spending control. If the trend continues, it could reinforce confidence in Pakistan’s fiscal framework and support broader economic planning.

Credit: INP-WealthPk