ISLAMABAD: Pakistan recorded its narrowest fiscal deficit in more than two decades during fiscal year 2025-26, with the budget gap falling to 2.6% of gross domestic product (GDP), according to provisional data released by the Ministry of Finance.
The overall deficit dropped to Rs3.31 trillion in FY26 from Rs6.17 trillion a year earlier, marking an improvement of around Rs2.85 trillion. The deficit had stood at 7.9% of GDP in FY22.
The improvement was supported by stronger revenue collection, tighter expenditure controls and a significant decline in government interest payments.
Finance Minister’s Adviser Khurram Schehzad said the country also posted a primary surplus of 2.9% of GDP, the strongest performance in 22 years. The primary balance improved from 0.9% of GDP in FY24 to 2.4% in FY25 before reaching the latest record.
Revenues strengthen
Government revenues rose to Rs19.77 trillion in FY26 from Rs18 trillion in the previous year, while tax collection increased to Rs14.22 trillion from Rs12.72 trillion.
At the same time, total government expenditure declined to Rs23.09 trillion from Rs24.17 trillion. Current expenditure fell to Rs20.69 trillion from Rs21.53 trillion.
One of the biggest gains came from lower debt servicing costs. Interest payments fell sharply to Rs6.95 trillion from Rs8.89 trillion, reducing their share of GDP from 7.7% to 5.5%.
Development spending rises
Despite overall expenditure controls, development expenditure and net lending increased to Rs3.25 trillion during FY26, compared with Rs2.97 trillion in the preceding year.
The government financed the remaining fiscal gap through Rs2.14 trillion in domestic financing and Rs1.18 trillion from external sources.
Schehzad said the improvement reflected greater fiscal discipline, stronger revenues and ongoing economic reforms. He added that the pace of government debt accumulation had slowed to its lowest level in two decades, while the debt-to-GDP ratio declined to around 68%.
The stronger fiscal position has also been supported by improved external accounts and rising foreign exchange reserves.
In July, S&P Global Ratings upgraded Pakistan’s sovereign credit rating from B- to B, citing progress in fiscal consolidation, stronger revenue collection, reserve rebuilding and a reduction in the debt burden.
The latest figures mark a significant improvement in Pakistan’s public finances, but maintaining the gains will require continued revenue growth and control over non-interest expenditure while ensuring sufficient funding for development and essential public services.
