Pakistan recorded a primary budget surplus of Rs3.63 trillion during fiscal year 2025-26, exceeding the International Monetary Fund’s (IMF) target by Rs464 billion as the government maintained tight control over expenditure despite falling short of several revenue targets. The surplus marked the third consecutive year in which Pakistan recorded a primary budget surplus and represented 2.6% of gross domestic product.
The fiscal performance allowed Pakistan to meet the IMF’s primary surplus condition despite lower Federal Board of Revenue (FBR) tax collection and slightly weaker provincial cash surpluses. According to the fiscal operations summary released by the Ministry of Finance, the IMF had set a primary surplus target of Rs3.16 trillion for the fiscal year. Officials said that even after adjustments related to foreign project loans and higher circular debt flows, the government remained in a position to meet the agreed fiscal condition.
The federal government’s budget deficit also remained below the target during the fiscal year. The federal deficit stood at Rs4.8 trillion, which was Rs1.74 trillion lower than the budgeted target. The overall budget deficit, after accounting for provincial cash surpluses, was recorded at Rs3.3 trillion, around Rs1.7 trillion below the target set in the budget.
Several factors contributed to the lower federal deficit. Interest payments were Rs1.3 trillion below the budgeted amount, while petroleum levy collection exceeded expectations by Rs101 billion. Federal development expenditure was also Rs82 billion below the originally approved allocation. These factors helped offset weaker revenue performance and supported the government’s overall fiscal position during the year.
Pakistan’s four provincial governments generated a combined cash surplus of Rs1.45 trillion during FY2025-26. This was only Rs14 billion below the IMF condition. Punjab recorded the largest provincial cash surplus at Rs914 billion, followed by Sindh with Rs350 billion, Khyber-Pakhtunkhwa with Rs165 billion and Balochistan with Rs21 billion.
The provinces also exceeded their IMF revenue collection condition by Rs18 billion, collecting slightly more than Rs1.2 trillion in taxes. However, the performance of the Federal Board of Revenue remained below expectations. FBR collected approximately Rs13 trillion during the fiscal year, nearly Rs1 trillion below the IMF’s revised target. The tax-to-GDP ratio remained at 10.3%, while the 11% increase in FBR collection over the previous year was broadly equal to nominal GDP growth.
The government also missed its non-tax revenue target by Rs63 billion. Non-tax revenue amounted to nearly Rs5.1 trillion, including approximately Rs2.4 trillion in profits received from the central bank. At the same time, petroleum levy collection provided a significant boost to government revenues, reaching Rs1.567 trillion, an increase of 28% compared with the previous year and Rs101 billion above the IMF target.
The higher petroleum levy collection has also become an important component of the government’s fiscal plans for the current financial year. Pakistan has agreed to a petroleum levy collection target of Rs1.7 trillion with the IMF for the current fiscal year. Meeting this target would require maintaining the levy at Rs80 per litre throughout the year despite movements in fuel prices.
Federal development spending stood at Rs918 billion during FY2025-26. This was Rs82 billion below the originally approved budget but Rs100 billion higher than the downward revised allocation. The government’s expenditure management, together with cash management measures, contributed to the reduction in the fiscal deficit.
Debt servicing also remained below the budgeted level. The Ministry of Finance reported that early retirement of Rs1.9 trillion in domestic debt and tighter fiscal management resulted in savings of Rs1.967 trillion in domestic debt servicing. Against the budgeted amount of Rs8.2 trillion, domestic debt servicing stood at Rs6.95 trillion during the fiscal year.
The improved fiscal position also helped limit the pace of public debt growth. Public debt increased by 7% during the last financial year, compared with the double-digit growth seen previously. However, the fiscal consolidation measures have placed pressure on households and businesses, creating a challenge for the government as it seeks to provide economic relief while maintaining commitments under the IMF programme.
An IMF mission is expected to visit Islamabad during the third week of September to review Pakistan’s economic performance for FY2025-26. The mission is also expected to conduct a comprehensive assessment of the economy under Article IV and recommend the release of the fifth tranche of approximately $1.1 billion under Pakistan’s IMF programme.
The fiscal accounts also recorded a statistical discrepancy of Rs853 billion across the federal and provincial budgets. The Ministry of Finance attributed the discrepancy primarily to movements in cash balances, including changes in commercial bank deposits and variations in reporting and book adjustments among the State Bank of Pakistan, FBR and Economic Affairs Division.
At the federal level, the statistical discrepancy stood at Rs448 billion, while provincial governments recorded a combined discrepancy of Rs405 billion. Punjab accounted for Rs266 billion, Khyber-Pakhtunkhwa Rs95 billion, Balochistan Rs72 billion and Sindh Rs28 billion. The Ministry of Finance said movements in commercial bank deposits were the main factor behind the provincial discrepancies.
Overall, Pakistan’s FY2025-26 fiscal results show a stronger primary balance and a lower federal deficit despite shortfalls in major revenue targets. The Rs3.63 trillion primary surplus exceeded the IMF requirement, while lower interest costs, higher petroleum levy receipts and controlled development expenditure helped the government maintain its fiscal commitments
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