Fiscal surplus shrinks 40pc as revenues decline

• Primary surplus drops to 2.1pc of GDP from 2.8pc last year
• Revenue falls despite higher tax collections; interest payments jump 23pc
• Provincial cash surpluses shrink 23pc; Balochistan posts deficit

ISLAMABAD: Pakistan’s fiscal buffers weakened in the first quarter of the current fiscal year despite expenditure controls and subsidy cuts, as revenue-to-GDP ratios declined and provincial cash surpluses shrank.

The overall fiscal surplus fell to 0.9 per cent of GDP in July-September this year from 1.7pc a year ago, according to fiscal operations data released by the Ministry of Finance.

In absolute terms, the surplus declined by 40pc to Rs1.273 trillion in the first three months of the current fiscal year compared to Rs2.12tr a year earlier.

The primary surplus — the difference between total revenue and expenditure excluding interest payments — also narrowed to 2.1pc of GDP from 2.8pc in the corresponding period last year. It stood at Rs2.97tr, down 15pc from Rs3.5tr in the first quarter of the previous fiscal year.

Total revenue declined to 4.2pc of GDP from 4.9pc a year earlier. In a rare happening, revenue also fell in absolute terms to Rs6.004tr from Rs6.2tr, despite inflationary pressures and nominal economic growth that normally contribute to higher collections.

The deterioration was reflected in both tax and non-tax revenue ratios, although the larger decline came from non-tax revenue, which fell to 1.8pc of GDP (Rs2.6tr) by the end of September 2026 compared to 2.4pc (Rs3.046tr) a year earlier.

This was mainly due to lower State Bank profits, which dropped to Rs1.933tr from Rs2.43tr. However, petroleum receipts increased slightly to Rs382bn from Rs372bn.

Tax revenue slipped to 2.4pc of GDP from 2.5pc a year earlier, although collections increased in absolute terms to Rs3.387tr from Rs3.153tr.

On the expenditure side, total spending increased both as a percentage of GDP and in absolute terms.

The expenditure-to-GDP ratio rose to 3.3pc from 3.2pc, while total expenditure increased by 16pc to Rs4.73tr from Rs4.08tr last year.

Current expenditure declined as a share of GDP to 3pc from 3.2pc, although it increased in absolute terms to Rs4.293tr from Rs4.047tr.

A major contributor to higher spending was the increase in interest payments, which rose by more than 23pc to Rs1.7tr from Rs1.378tr. As a share of GDP, these payments increased to 1.2pc from 1.1pc.

Defence expenditure declined as a share of GDP to 0.3pc from 0.4pc, although it rose in absolute terms to Rs496bn from Rs447bn.

Development expenditure remained unchanged at 0.3pc of GDP but increased to Rs468bn from Rs440bn.

The data showed that subsidies were curtailed to Rs84.6bn (0.2pc of GDP) compared to Rs120bn (0.3pc) in the same period last year.

Pension expenditure and the cost of running the civil government increased by 10pc and 6pc to Rs495bn and Rs263bn, respectively.

Meanwhile, cash surpluses generated by the four provincial governments declined by 23pc to Rs600bn from Rs781bn last year.

Punjab’s surplus fell to Rs333bn from Rs442bn, while Sindh’s surplus declined to Rs181bn from Rs209bn.

However, Khyber Pakhtunkhwa increased its surplus by 33pc to Rs102bn from Rs77bn. Balochistan recorded a Rs16bn deficit in the first quarter against a surplus of Rs53bn in the corresponding period last year.

The Ministry of Finance also reported a statistical discrepancy of Rs60bn in provincial accounts and attributed it to uncleared or delayed payments, late presentation of cheques relating to assignment accounts and movements in commercial bank deposits.

A federal statistical discrepancy of Rs98bn was attributed to reporting time lags, book adjustments involving the State Bank of Pakistan, Federal Board of Reve­nue and Economic Affairs Division and a decline in commercial bank deposits.

Published in Dawn, November 14th, 2026

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