Pakistan fiscal deficit falls to 22-year low

Pakistan fiscal deficit falls to 22-year low

ISLAMABAD: Pakistan’s fiscal position improved significantly during the fiscal year 2025-26, with the federal Ministry of Finance reporting that the country’s fiscal deficit fell to its lowest level in 22 years.

According to a statement issued by the Ministry of Finance, the fiscal deficit stood at 2.6% of Gross Domestic Product (GDP) during FY2025-26. The government also recorded a primary surplus of 2.9% of GDP, marking its highest level in 26 years.

Pakistan has now maintained a primary surplus for three consecutive years, reflecting an improvement in the government’s ability to cover its non-interest expenditures through its revenues.

The ministry reported that total government revenues reached Rs19.8 trillion during the fiscal year. Tax revenues accounted for Rs14.8 trillion, highlighting the central role of improved revenue collection in strengthening the country’s fiscal position.

Meanwhile, the government significantly reduced its interest-related expenditure. Interest payments declined to Rs6.95 trillion in FY2025-26 from Rs8.9 trillion in the previous fiscal year. The reduction helped ease pressure on the overall budget and contributed to the improvement in the fiscal balance.

On the expenditure side, defence spending increased by 18% to Rs2.588 trillion during the year. The government, however, reduced spending on subsidies by 22%, bringing the amount down from around Rs1.3 trillion to Rs1.001 trillion.

Development spending also declined during the fiscal year. According to the ministry, development expenditure fell from Rs786 billion to Rs727 billion.

The latest figures indicate a notable improvement in Pakistan’s fiscal management, particularly through stronger revenue collection, a reduction in interest payments and tighter control over certain categories of expenditure. The government’s continued primary surplus also represents an important indicator of progress in efforts to stabilise public finances.