Pakistan’s fiscal deficit narrows to 22-year low of 2.6% of GDP in FY26: Schehzad

Pakistan’s fiscal deficit narrowed to 2.6% of gross domestic product (GDP) in the fiscal year 2025-26, its lowest level in more than two decades, said Adviser to the Finance Minister Khurram Schehzad.

The deficit, which stood at 7.9% of GDP in FY22, has declined for three consecutive years, while the government recorded a primary surplus, before interest payments, of 2.9% of GDP in FY26, Schehzad said in a post on X on Thursday.

He described the outcome as the strongest fiscal performance in 22 years.

“Pakistan has closed FY2025-26 with a historic strengthening of its public finances — marking a decisive shift from recurring fiscal stress toward discipline, stability and sustainable growth,” said the adviser.

According to the figures cited by Schehzad, Pakistan’s primary surplus rose from 0.9% of GDP in FY24 to 2.4% in FY25 and 2.9% in FY26, “the highest since FY21”.

“In just three years, the fiscal deficit has improved by 5.2 percentage points of GDP, while the primary balance has swung by 3.9 percentage points— from a 1.0% deficit to a record 2.9% surplus,” said Schehzad.

The government’s overall fiscal deficit was Rs3.31 trillion in FY26, while the primary surplus amounted to Rs3.63 trillion, Schehzad said. Meanwhile, revenues reached Rs19.8 trillion, including Rs14.2 trillion in tax receipts.

Interest payments, meanwhile, fell to about Rs6.95 trillion in FY26 from Rs8.9 trillion a year earlier, according to the statement.

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“This is not simply deficit reduction. It reflects a fundamental strengthening of Pakistan’s fiscal position — driven by stronger revenues, expenditure discipline and sustained reforms,” said Schehzad.

Schehzad said debt growth had slowed to a 20-year low and that the government’s debt-to-GDP ratio had declined to about 68%, alongside a reduction in debt-servicing costs.

“This means lower financing pressure, improving debt sustainability and greater fiscal space for development.”

The fiscal consolidation has also coincided with an improvement in Pakistan’s external position, including rebuilding foreign-exchange reserves and stronger external accounts. S&P Global Ratings upgraded Pakistan’s sovereign credit rating to B from B- in July, “specifically recognising faster fiscal consolidation, stronger revenue mobilisation, rebuilding reserves and declining government debt-to-GDP”, Schehzad said.

“Together, these improvements provide a stronger foundation for investment, development and sustainable, inclusive growth,” he maintained.