Pakistan has recorded a significant fiscal achievement in FY25, posting a budget deficit of just 5.38 percent of GDP — the lowest in nine years. This performance beats both the government’s revised forecast of 5.6 percent and the earlier budget estimate of 5.9 percent, marking a notable shift in the country’s fiscal direction. The International Monetary Fund (IMF) had also projected a deficit of 5.6 percent.
According to data compiled by Topline Securities, the encouraging fiscal performance is largely driven by a substantial 36 percent year-on-year increase in total revenues. This includes both tax and non-tax streams, outpacing the 18 percent growth in overall government expenditures.
A major contributor to the non-tax revenue surge was a sharp rise in dividends from the State Bank of Pakistan (SBP). The central bank disbursed Rs. 2.62 trillion in FY25, compared to Rs. 0.97 trillion in FY24, benefiting from higher interest rates and an expanded balance sheet.
Tax revenues also maintained a solid trajectory, growing 26 percent year-on-year, primarily due to the Federal Board of Revenue’s (FBR) consistent performance. FBR revenues, including petroleum development levy (PDL), increased by 26 percent. Over the last five years, FBR’s tax collections have surged from Rs. 4.3 trillion in FY20 to Rs. 12.9 trillion in FY25 — a 3.02x jump — while GDP during the same period expanded from Rs. 41 trillion to Rs. 114.6 trillion, or 2.75x.
This robust tax collection has driven the tax-to-GDP ratio to 11.3 percent in FY25 — a 7-year high. This compares favorably with the 9.7 percent ratio in FY24 and a five-year average of 9.9 percent.
One of the most striking highlights of the fiscal report is the primary balance, which stood at a surplus of 2.4 percent of GDP — the highest in more than two decades. This surplus not only exceeded the government’s revised forecast of 2.2 percent, but also beat the IMF’s estimate of 2.1 percent, signaling a strong improvement in fiscal health. A primary surplus indicates that the government’s revenues are sufficient to cover its non-interest expenditures — a key indicator of debt sustainability.
Debt servicing has also improved. Interest expenses, as a percentage of FBR tax revenues, declined to 76 percent in FY25, down from 88 percent in FY24. This is attributed to a modest 9 percent rise in interest expenses, driven by reduced borrowing costs amid a more favorable interest rate environment.
Public Sector Development Programme (PSDP) spending has also rebounded. As a percentage of GDP, PSDP expenditure rose to 2.6 percent in FY25, up from 1.9 percent in FY24. Although still lower than the historic high of 5 percent recorded in FY17, this marks a five-year peak and signals renewed focus on development and infrastructure spending.
Looking ahead, the government is expected to post a third consecutive year of primary surplus in FY26 — a streak not seen in over 20 years. The overall fiscal deficit is projected to drop further to 4.0–4.1 percent of GDP in FY26, which, if achieved, would be the lowest in two decades. The fiscal turnaround indicates stronger macroeconomic fundamentals and could enhance investor confidence in Pakistan’s economic outlook.