Pakistan recorded a significant improvement in its fiscal position during FY2026 as stronger revenue mobilisation and lower government spending helped reduce the fiscal deficit compared with the previous year. The latest economic data shows that higher tax collection, improved non-tax revenues and prudent expenditure management contributed to strengthening the country’s public finances during the review period.
The Federal Board of Revenue (FBR) collected Rs13,010.4 billion during the July to June period of FY2026, representing a 10.8 percent increase over the previous fiscal year. Tax collection reached the equivalent of 10.3 percent of the country’s Gross Domestic Product (GDP), reflecting continued efforts to improve revenue generation and strengthen the government’s fiscal position.
Growth in revenue collection was supported by improvements in both direct and indirect taxes. Direct tax collection increased by 13.7 percent during the fiscal year, while indirect taxes registered growth of 7.9 percent. The performance indicates broader expansion across multiple revenue sources despite ongoing economic challenges.
Among indirect taxes, sales tax remained one of the strongest contributors, increasing by 9.0 percent during FY2026. Customs duties also recorded positive growth of 3.6 percent, while federal excise duty collection increased by 9.6 percent, supporting overall tax revenues and strengthening federal finances.
Federal revenue performance also improved beyond taxation. During the July to May period of FY2026, net federal revenue receipts increased by 7.3 percent to Rs9,385.4 billion, supported by higher tax revenues as well as increased collections from non-tax sources. Federal non-tax revenue reached Rs4,852.0 billion during the review period, representing a 6.3 percent increase compared with the previous year.
Alongside stronger revenue generation, government expenditure declined significantly during the fiscal year. Total expenditures fell by 9.4 percent to Rs12,732.9 billion during the July to May period. Lower spending across both current and development budgets contributed to improved fiscal outcomes.
Current expenditure declined by 9.4 percent, largely because of a substantial reduction in markup payments on government debt. Markup payments decreased by 21.7 percent during the review period, easing pressure on the federal budget and contributing to lower overall expenditure. Development spending also declined by 8.9 percent compared with the corresponding period of the previous fiscal year.
As a result of stronger revenues and controlled expenditures, Pakistan’s fiscal deficit narrowed considerably. During the July to May period of FY2026, the fiscal deficit stood at 1.6 percent of GDP, equivalent to Rs2,032.8 billion. This represents a substantial improvement from the corresponding period of FY2025, when the fiscal deficit reached 3.8 percent of GDP, or Rs4,278.0 billion.
Pakistan also recorded an improvement in its primary fiscal balance. The primary surplus reached 3.3 percent of GDP, equivalent to Rs4,130.8 billion during the review period. In comparison, the primary surplus during the same period of the previous fiscal year stood at 3.2 percent of GDP, amounting to Rs3,594.6 billion. The higher surplus indicates continued progress in strengthening fiscal discipline before accounting for interest payments on government debt.
The latest fiscal performance highlights the impact of improved revenue mobilisation and expenditure management on Pakistan’s public finances. While sustaining these gains will require continued progress in tax reforms, economic growth and efficient public spending, the reduction in the fiscal deficit and improvement in the primary surplus indicate stronger fiscal stability during FY2026.
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