Pakistan has achieved a substantial milestone in its journey toward economic stability as the fiscal deficit narrowed sharply during the first nine months of the fiscal year 2026. Official data reveals that the budget deficit settled at Rs856 billion, representing just 0.7 percent of the Gross Domestic Product. This figure marks a dramatic improvement from the 2.6 percent of GDP, or Rs3 trillion, recorded during the same period in the previous fiscal year. This aggressive fiscal consolidation highlights the success of recent state measures aimed at balancing the national books through disciplined spending and robust revenue generation strategies.
The primary driver behind this fiscal turnaround is a significant reduction in total expenditures, which saw a year-on-year decline of 4 percent. Most notably, interest expenses plummeted by 23 percent to Rs4.95 trillion. This sharp drop in debt servicing costs is largely attributed to a more favorable interest rate environment and strategic debt management by the government. The average Treasury bill yield fell to 10.8 percent during the nine-month period, a steep decline from the 14.3 percent observed last year. This shift has provided the federal treasury with much-needed breathing room by substantially easing the burden of domestic borrowing costs.
On the revenue side, the government has shown resilience with total collections posting an 11 percent year-on-year growth. The Federal Board of Revenue played a pivotal role in this mobilization, collecting Rs9.31 trillion during the first nine months of FY26, which is a 10 percent increase compared to the prior year. Even when excluding interest payments, non-interest government expenditures grew by a modest 8 percent, suggesting that while the state is investing in operations, it is doing so at a pace slower than its income growth. This positive gap between revenue and non-interest spending has allowed the country to maintain a healthy fiscal trajectory.
A standout feature of the latest financial report is the primary surplus, which reached Rs4.09 trillion, equivalent to 3.2 percent of GDP. This performance not only shows an improvement over the 3.0 percent recorded last year but also comfortably exceeds the target of 2.5 percent set by the International Monetary Fund for the current fiscal year. The ability to surpass IMF benchmarks indicates a high level of fiscal discipline and a commitment to the ongoing economic reform program. Furthermore, the government successfully curtailed expenses related to subsidies and grants, which fell by 14 percent year-on-year, further bolstering the consolidation efforts.
Regarding the financing of the remaining deficit, the government has pivoted toward domestic channels while reducing its footprint in international debt markets. Bank financing accounted for Rs752 billion and non-bank sources contributed Rs210 billion. Interestingly, external financing recorded a net retirement of Rs106 billion during the nine-month period. This reduction in reliance on foreign borrowing is a positive signal for national economic sovereignty and debt sustainability. As the fiscal year moves into its final quarter, the maintained primary surplus and lower borrowing costs position the economy for a more stable and predictable closing.
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