Fiscal consolidation is expected to remain on course in FY26. There may be a shortfall in FBR revenues (as was the case last year), but the primary surplus—and possibly the fiscal deficit targets—are expected to be met due to stronger non-tax revenues (similar to last year) and curtailed development expenditure.
Early numbers support this trend. In non-tax revenues, the government received another bumper dividend. According to the SBP’s press release, Rs2,428 billion in surplus profits from the central bank are being transferred to the federal government—slightly above the budgeted Rs2,400 billion.
This marks the second consecutive year of bumper profits from the SBP. In FY24, the SBP earned around Rs3,400 billion in profits, and after retaining some earnings to maintain the required capital adequacy ratio, Rs2,619 billion were transferred to the government in FY25—compared to the budgeted Rs2,500 billion.
The higher profits in FY24 stemmed from over Rs10 trillion in indirect lending to the government through open market operations. The windfall continued in FY25, though declining interest rates compressed margins somewhat. Even so, the SBP managed to transfer a higher-than-budgeted amount to the government. However, this trend is unlikely to persist in FY26, and SBP profits may not be a highlight of the FY27 budget.
Until then, a possible FBR shortfall—caused by subdued economic growth—may be offset by higher non-tax revenues, notably SBP profits and the petroleum levy (with rates recently increased).
Reportedly, the FBR has already missed its target by Rs65 billion, collecting Rs1,635 billion by the last working day.
The shortfall is mainly due to lower collections from electricity bills, with consumption around 10 percent below reference levels, driven by rising solarization and sluggish industrial demand. This trend is likely to persist in the coming months as the SBP seeks to restrain imports to manage the external account, which in turn will keep industrial activity—and thus FBR revenue growth—subdued.
Nonetheless, higher petroleum levy rates and another strong year of SBP profits should help ensure another sizable primary fiscal surplus. Last year, the government exceeded its target of Rs2,492 billion (2% of GDP), achieving Rs2,719 billion (2.4% of GDP)—the highest in 24 years.
A similar target of Rs3,170 billion (2.4% of GDP) has been set for this year. Barring any unforeseen flood-related expenditures, the outlook suggests this target will also be met.
Copyright Business Recorder, 2025
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