Pakistan holds fiscal deficit at 1.6pc of GDP over 11 months of FY26

Pakistan’s government managed to contain its overall fiscal deficit at 1.6 percent of Gross Domestic Product during the first 11 months of fiscal year 2025-26, helped by strong collection under the petroleum and climate levy, which exceeded Rs1.478 trillion during the period.

The federal budget deficit stood at Rs3.34 trillion, or 2.6 percent of GDP, for the July to May period, according to official data. A revenue surplus of Rs1.31 trillion generated by the provinces during the same period, in line with commitments made under the IMF agreement, helped bring the overall fiscal deficit down further to Rs2.03 trillion, equivalent to 1.6 percent of GDP.

For the full fiscal year, the government had targeted an overall deficit of 3 percent of GDP, or Rs3.77 trillion, under revised estimates set during the previous fiscal year. That figure represents a downward revision from the initial target of 3.9 percent of GDP, or Rs5.03 trillion.

The Ministry of Finance has yet to release reconciled fiscal operations figures for the full fiscal year, which ended on June 30, 2026, with officials saying final numbers will be compiled in the coming weeks.

Official data covering the first 11 months of the fiscal year showed that three sources of non tax revenue, State Bank of Pakistan profits, the petroleum levy and the climate support levy, together generated Rs4.82 trillion for the government, against a full year target of Rs5.14 trillion. The State Bank’s surplus profit contributed Rs2.428 trillion, the petroleum levy added Rs1.432 trillion and the climate levy brought in Rs45.968 billion during the period.

The Federal Board of Revenue collected Rs11.228 trillion during the July to May period, bringing gross federal revenue receipts to Rs16.08 trillion. After transferring Rs6.6 trillion to the provinces through the National Finance Commission Award along with grants and subventions, net federal revenue receipts stood at Rs9.38 trillion for the first 11 months of the fiscal year.

Total government expenditure reached Rs12.73 trillion during the same period, with current expenditure accounting for the bulk at Rs12.15 trillion. Within that figure, markup payments on domestic and foreign loans alone consumed Rs6.163 trillion, meaning debt servicing accounted for more than half of all current spending.

Defence spending came in at Rs2.11 trillion, while all remaining expenditure categories, including salaries, pensions, subsidies and the running of civil administration, totaled Rs3.879 trillion during the 11 month period.

Spending under the Public Sector Development Programme reached Rs578 billion over the same stretch. Planning Minister Ahsan Iqbal said this marked the second consecutive year in which his ministry fully utilized its allocated development funds by the close of the fiscal year on June 30, 2026.

The Ministry of Finance plans to release reconciled fiscal operations figures for the full 2025-26 fiscal year in the coming weeks, with officials aiming to keep the overall deficit at 3 percent of GDP for the year, building on the 1.6 percent figure recorded through the July to May period.

A statistical discrepancy, reflecting gaps between reported revenue and expenditure figures that could not be reconciled, stood at Rs262.394 billion during the first 11 months of the fiscal year.

The government’s ability to hold the deficit below its revised target reflects continued reliance on non tax revenue sources such as the petroleum and climate levies to offset pressure from debt servicing costs, which remain the single largest driver of current expenditure. With markup payments consuming more than half of all current spending, analysts tracking Pakistan’s fiscal position have noted that sustained progress on reducing the deficit will likely depend on continued discipline in provincial revenue generation alongside efforts to manage the country’s debt burden going forward.