Pakistan’s fiscal consolidation efforts continued on a steady trajectory in FY2025, leading to one of the strongest fiscal outcomes in recent years. Backed by impressive revenue growth and prudent expenditure management, the fiscal deficit narrowed to 5.4 percent of GDP, down from 6.9 percent in FY2024. This marks the lowest deficit level in eight years, underlining the government’s commitment to financial discipline and stabilization.
The fiscal improvement was further highlighted by a sharp increase in the primary surplus, which reached Rs. 2,719.4 billion or 2.4 percent of GDP, compared to Rs. 952.9 billion or 0.9 percent in the previous year. This represents the highest primary surplus in 24 years, a result attributed to effective expenditure containment and a focus on reducing non-markup spending.
Total expenditure for FY2025 stood at Rs. 24,165.5 billion, showing an 18 percent increase. Within this, current spending rose by 15.9 percent to Rs. 21,528.6 billion. Despite the growth, the moderation in current expenditures created fiscal space for development priorities. This was reflected in a sharp rise of 43.3 percent in the federal Public Sector Development Programme (PSDP), enabling the government to channel resources into infrastructure, energy, and social sector projects aimed at long-term growth.
On the revenue front, performance exceeded expectations. Tax collection grew by 26.2 percent during the fiscal year, supported by stronger compliance and expansion in the tax base. Non-tax revenues surged even more sharply by 65.7 percent, providing an additional buffer for fiscal stability. The combination of higher revenues and controlled spending helped achieve the dual objective of deficit reduction and enhanced development allocations.
Momentum in fiscal performance carried into FY2026, with the Federal Board of Revenue (FBR) reporting a 14.8 percent rise in tax collection in July. Total receipts reached Rs. 757.4 billion, driven by a 12.5 percent increase in domestic taxes and a robust 31.2 percent growth in customs duty collection. This early performance suggests continued strength in revenue mobilization, essential for sustaining fiscal consolidation in the new financial year.
Economists note that the narrowing fiscal deficit and record surplus provide room for Pakistan to focus on broader economic reforms and growth-oriented initiatives. At the same time, they caution that sustaining this progress will require consistency in policy execution, improved efficiency in public expenditure, and further efforts to strengthen tax administration.
The government’s ability to maintain a balance between fiscal discipline and growth-focused development spending is being viewed as a positive signal for both domestic and international stakeholders. Improved fiscal health also enhances Pakistan’s position in managing external obligations and engaging with multilateral partners.
With revenues on an upward trend and development spending prioritized, Pakistan’s fiscal outlook appears stronger than in previous years. The challenge ahead lies in consolidating these gains while addressing structural weaknesses to build resilience against future economic shocks.
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