Pakistan posts Rs3.6tr primary surplus as fiscal position improves in FY2025-26

Pakistan closed the financial year 2025-26 with a primary budget surplus of around Rs3.6 trillion, marking the third consecutive year of a surplus and allowing the country to comfortably meet a key fiscal condition

ISLAMABAD: Pakistan closed the financial year 2025-26 with a primary budget surplus of around Rs3.6 trillion, marking the third consecutive year of a surplus and allowing the country to comfortably meet a key fiscal condition agreed with the International Monetary Fund (IMF).

The improvement came despite the government falling short of its tax collection targets, with stronger petroleum levy receipts, tighter expenditure controls and lower-than-expected debt servicing costs helping offset the revenue shortfall.

According to the latest fiscal operations data released by the Ministry of Finance, the unadjusted primary surplus reached Rs3.63 trillion, equivalent to 2.6% of the country’s gross domestic product (GDP). The figure was approximately Rs464 billion higher than the IMF’s target of Rs3.16 trillion.

The primary balance is considered an important indicator under Pakistan’s IMF programme because it measures the government’s fiscal position before interest payments on public debt. The latest figures indicate that the government maintained fiscal discipline despite continued pressure on revenues and expenditure.

Overall fiscal deficit below target

Pakistan’s overall budget deficit, after accounting for provincial cash surpluses, stood at approximately Rs3.3 trillion during FY2025-26. This was around Rs1.7 trillion lower than the amount initially projected in the federal budget.

The federal government’s own deficit was recorded at Rs4.8 trillion, also significantly below the budgeted level. The better-than-expected outcome was primarily attributed to lower interest payments, stronger petroleum levy receipts and restrained development expenditure.

Interest payments were around Rs1.3 trillion below the amount originally allocated in the budget. The government also collected approximately Rs101 billion more than its petroleum levy target, while federal development spending remained Rs82 billion below the initially approved allocation.

The fiscal improvement also contributed to a moderation in the growth of public debt. Public debt increased by around 7% during the year, bringing some relief after several years of double-digit debt expansion.

Provinces narrowly miss IMF cash surplus target

The four provincial governments collectively generated a cash surplus of around Rs1.45 trillion during the fiscal year. Although the amount fell marginally short of the IMF’s combined requirement, the shortfall was only around Rs14 billion.

Punjab contributed the largest share, recording a cash surplus of approximately Rs914 billion. Sindh posted a surplus of around Rs350 billion, followed by Khyber-Pakhtunkhwa with Rs165 billion and Balochistan with approximately Rs21 billion.

Provincial governments, meanwhile, performed slightly better on revenue collection. Their combined tax receipts exceeded the IMF condition by around Rs18 billion, with collections crossing Rs1.2 trillion.

FBR misses tax target

Despite the overall improvement in the fiscal position, tax collection remained a major area of concern.

The Federal Board of Revenue collected approximately Rs13 trillion during FY2025-26, falling nearly Rs1 trillion short of the IMF’s revised target.

FBR tax receipts increased by about 11% compared with the previous year. However, this increase was broadly in line with nominal GDP growth, indicating that the tax-to-GDP ratio remained largely unchanged at around 10.3%.

The figures suggest that additional revenue expected from new taxation and enforcement measures did not fully materialise. The government had anticipated around Rs700 billion in additional revenue from such measures.

Non-tax revenue also remained below expectations by approximately Rs63 billion. Total non-tax receipts stood close to Rs5.1 trillion, including around Rs2.4 trillion in profits transferred by the central bank.

Petroleum levy becomes key revenue source

A major contributor to the stronger fiscal outcome was the petroleum levy.

Collections under the petroleum levy climbed to around Rs1.567 trillion, representing an increase of approximately 28% over the previous year. The amount was also Rs101 billion above the target agreed with the IMF.

The additional collection effectively represented roughly 25 days of petroleum price relief at a levy rate of Rs80 per litre on petrol and high-speed diesel.

For the current financial year, the government has committed to collecting approximately Rs1.7 trillion through the petroleum levy. Meeting this objective is expected to require maintaining the levy at around Rs80 per litre, subject to the applicable petroleum pricing mechanism and market conditions.

Development spending remains restrained

The government’s fiscal consolidation strategy also affected development expenditure.

Federal development spending was recorded at around Rs918 billion, approximately Rs82 billion below the originally approved budget allocation. However, the amount was still around Rs100 billion higher than the subsequently revised allocation.

The figures reflect the government’s efforts to contain expenditure and prioritise fiscal targets amid pressure from debt servicing and revenue mobilisation.

Debt servicing costs fall

Lower-than-expected debt servicing provided another significant boost to the government’s fiscal position.

The Ministry of Finance reported that debt servicing remained around Rs6.95 trillion during the year, compared with the budgeted amount of approximately Rs8.2 trillion.

The government attributed the savings to tight fiscal management, improved cash handling and the early retirement of around Rs1.9 trillion in domestic debt. These measures helped reduce domestic debt servicing costs by nearly Rs1.97 trillion compared with the original estimates.

Statistical discrepancy highlighted

The fiscal operations report also identified a statistical discrepancy of around Rs853 billion across the federal and provincial accounts.

According to the Ministry of Finance, the discrepancy was linked largely to changes in cash balances and differences in the recording and reporting of financial data. The negative discrepancy indicated that cash inflows were higher than recorded outflows.

At the federal level, the discrepancy stood at approximately Rs448 billion. The ministry attributed the difference mainly to changes in commercial bank deposits as well as variations in reporting and accounting adjustments involving the State Bank of Pakistan, FBR and Economic Affairs Division.

Provincial accounts showed a combined statistical discrepancy of approximately Rs405 billion. Punjab accounted for around Rs266 billion, Khyber-Pakhtunkhwa Rs95 billion, Balochistan Rs72 billion and Sindh around Rs28 billion.

The ministry said movements in commercial bank deposits were among the principal factors behind the provincial differences.

IMF review ahead

The improved fiscal performance is expected to strengthen Pakistan’s position ahead of the next IMF assessment.

An IMF mission is expected to visit Islamabad in the third week of September to review Pakistan’s economic performance during the previous fiscal year. The mission is also expected to conduct a comprehensive assessment under the IMF’s Article IV consultation framework and evaluate progress under the ongoing programme.

The review will be closely watched because its outcome could pave the way for the release of the next loan tranche of approximately $1.1 billion, subject to completion of the required programme conditions.

Challenge shifts towards economic relief

While the fiscal numbers represent a significant improvement for the government, the stronger budget position also highlights a difficult policy challenge.

Fiscal consolidation measures introduced over the past several years have placed considerable pressure on households and businesses through higher taxes, energy costs and petroleum-related levies. With the fiscal position now showing signs of improvement, the government faces growing expectations to translate some of the gains into economic relief.

The central challenge for the Shehbaz Sharif government will therefore be to maintain fiscal discipline while creating room for growth, investment and relief for consumers.

The latest figures show that the government has made substantial progress in meeting its fiscal commitments, but sustaining that improvement will depend on broadening the tax base, improving revenue collection, controlling non-development expenditure and reducing reliance on measures such as petroleum levies.