Pakistan maintained a primary fiscal surplus during the opening month of fiscal year 2026-27, although a substantial increase in interest payments pushed the overall fiscal deficit significantly higher compared with the same period of the previous year. According to the September 2026 Monthly Economic Update and Outlook, the fiscal position in July FY2027 remained broadly aligned with consolidation efforts as revenue continued to grow and the government maintained a surplus before interest payments. However, the increase in markup payments placed considerable pressure on the overall fiscal balance.
Federal Board of Revenue net tax collection reached Rs1,722.4 billion during July and August FY2027, increasing 3.7 percent from Rs1,661.5 billion collected during the corresponding period of the previous year. The revenue performance was supported primarily by higher sales tax receipts, which increased 13.8 percent to Rs718.9 billion. Federal excise receipts also recorded a modest increase of 2.2 percent, reaching Rs117.9 billion during the period.
Other major tax categories recorded declines. Direct tax collection stood at Rs689.6 billion, representing a 2.9 percent decrease compared with the same period a year earlier. Customs receipts also declined by 4.0 percent to Rs195.9 billion. Despite these reductions, the increase in sales tax collection was sufficient to support overall growth in FBR net tax receipts during the first two months of FY2027. The composition of revenue therefore remained an important feature of the fiscal performance, with sales tax providing the principal source of growth among the major categories.
Federal non-tax revenue also increased during July FY2027. The government collected Rs213.7 billion in federal non-tax revenue, compared with Rs208.2 billion during July 2025. The increase added to the overall revenue position at the beginning of the fiscal year. Combined with the growth in tax receipts, the higher non-tax revenue contributed to maintaining the primary balance in surplus despite the significant rise in government expenditure.
On the expenditure side, federal government current outlays increased substantially to Rs1,092.0 billion in July 2026, compared with Rs761.6 billion in July 2025. The largest component of the increase was interest expenditure. Interest payments rose to Rs792.9 billion in July 2026 from Rs490.4 billion during the same month of the previous year. The increase in markup payments therefore accounted for a significant portion of the year-on-year rise in current expenditure.
Non-interest current expenditure stood at Rs299.1 billion during July FY2027, showing growth of 10.3 percent compared with the corresponding period of the previous year. The figures indicate that while non-interest spending also increased, the much larger movement in interest payments was the main factor behind the deterioration in the overall fiscal deficit. This distinction is reflected in the difference between the primary balance and the consolidated fiscal balance.
The consolidated fiscal deficit reached Rs596.6 billion in July FY2027, equivalent to 0.4 percent of gross domestic product. This compares with a deficit of Rs261.5 billion, or 0.2 percent of GDP, during July 2025. The wider deficit reflects the impact of increased interest costs on the government’s overall fiscal position. As interest payments are excluded from the primary balance, their sharp increase can widen the fiscal deficit even when the government continues to generate a primary surplus.
Despite the higher overall deficit, the consolidated primary balance remained in surplus at Rs196.3 billion, equivalent to 0.1 percent of GDP. This compares with a primary surplus of Rs228.9 billion, or 0.2 percent of GDP, in July 2025. The smaller surplus indicates that the government’s revenue position continued to cover non-interest expenditures, although the size of the surplus declined from the previous year.
The fiscal figures therefore present two different aspects of Pakistan’s budget position at the beginning of FY2027. Revenue collection continued to show growth, particularly through sales tax, while federal non-tax revenue also increased. At the same time, the substantial rise in interest payments placed pressure on the overall balance and resulted in a higher consolidated fiscal deficit. The maintenance of a primary surplus means that government revenues remained above non-interest expenditures during the month.
The September 2026 economic update highlights the importance of both revenue performance and expenditure management in the fiscal outlook. The ability to sustain revenue growth while controlling non-interest spending will affect the primary balance, while the level of interest payments will remain a major factor determining the overall fiscal deficit. The July FY2027 data shows that Pakistan began the fiscal year with a primary surplus, but significantly higher markup payments continued to weigh on the consolidated fiscal position.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.