By Farooq Awan

Pakistan’s fiscal deficit narrowed sharply to Rs64.7 billion during Jul-Jan FY2026, compared to Rs2,070.9 billion in the same period last year, according to the Monthly Economic Update & Outlook released by the Finance Division.

The significant reduction in the fiscal gap reflects improved fiscal consolidation, driven by higher revenues and a notable decline in expenditures.

During the period, federal revenue increased by 9.3 percent to reach Rs11,218.8 billion. The growth was supported by both tax and non-tax revenues, which rose by 10.5 percent and 7.4 percent, respectively.

At the same time, federal expenditure declined by 10.7 percent to Rs8,329.0 billion. The reduction in spending was mainly due to a 11.4 percent contraction in current expenditure.

A key factor behind the decline in current expenditure was a substantial reduction in markup payments. Markup expenditure dropped by 24.6 percent during the period, contributing significantly to overall fiscal consolidation.

In contrast, development expenditure increased by 13.0 percent, reflecting a shift in fiscal priorities toward growth-supporting spending. The rise in development outlays indicates continued investment in public sector projects despite overall expenditure compression.

The improvement in fiscal indicators is also reflected in the primary balance. During Jul-Jan FY2026, the primary surplus stood at 3.2 percent of GDP, equivalent to Rs4,151.6 billion, compared to 3.1 percent of GDP (Rs3,518.7 billion) in the same period last year.

On the revenue side, tax collection showed strong performance. During Jul-Feb FY2026, the Federal Board of Revenue (FBR) collected Rs8,122.2 billion in taxes, marking a 10.6 percent increase over the previous year.

The growth in tax revenues was driven by both direct and indirect taxes. Direct taxes increased by 12.2 percent, while indirect taxes grew by 9.1 percent.

Within indirect taxes, sales tax recorded a 10.0 percent increase, federal excise duty rose by 14.0 percent, and customs duties grew by 3.8 percent.

The report highlights that prudent fiscal management, including expenditure control and improved revenue mobilization, played a central role in narrowing the fiscal deficit.

Overall, the fiscal position remained on track during the period, with a combination of higher revenues, reduced current spending and increased development expenditure supporting fiscal consolidation efforts.

Credit: INP-WealthPk