By Farooq Awan

Pakistan's fiscal position improved significantly during FY2025-26 as stronger revenue collection, prudent expenditure management and lower debt servicing costs helped reduce the fiscal deficit, reinforcing the country's macroeconomic stability.

According to the Finance Division's Monthly Economic Update & Outlook (July 2026), the fiscal deficit narrowed to 3.7% of GDP during July-March FY2025-26, compared with 5.6% of GDP during the corresponding period of the previous fiscal year. At the same time, the primary surplus increased to 3.0% of GDP from 1.5% of GDP a year earlier.

The report states that total revenues continued to grow during the period, supported by higher tax and non-tax collections. Net federal revenues increased by 43.7% to Rs8.5 trillion, while provincial revenues rose 17.6% to Rs730.8 billion. Overall, total revenues reached Rs9.3 trillion, representing an increase of 41.4% over the same period last year.

According to the document, growth in revenues outpaced the increase in government spending. Total expenditures rose 18.0% to Rs11.8 trillion, mainly due to higher development spending and current expenditures. However, mark-up payments declined by 10.5%, reflecting lower domestic interest rates and improved debt management, which eased pressure on the federal budget.

The Finance Division notes that stronger fiscal indicators have contributed to improving macroeconomic fundamentals and enhanced investor confidence. The report says fiscal consolidation, alongside easing inflation, stronger foreign exchange reserves and a stable external account, has strengthened Pakistan's economic outlook as the country enters FY2027.

According to the report, the improvement in public finances has also been recognised internationally. It notes that S&P Global Ratings upgraded Pakistan's long-term sovereign credit rating from B- to B, citing stronger fiscal performance, continued implementation of reforms, improved institutional capacity and the rebuilding of foreign exchange reserves.

The document says the government intends to maintain fiscal discipline during FY2027 through continued revenue mobilisation, prudent expenditure management and reforms aimed at strengthening public finances. These measures are expected to support sustainable economic growth while preserving macroeconomic stability and reducing vulnerabilities.

The report adds that, although external risks remain, including geopolitical uncertainties and volatility in global commodity markets, Pakistan's stronger fiscal position, improved external buffers and ongoing structural reforms have increased the economy's resilience and its capacity to withstand potential external shocks.

Credit: INP-WealthPk