ISLAMABAD: Pakistan’s fiscal deficit fell to a 22-year low of 2.6 percent of GDP in fiscal year 2025-26, supported by higher provincial surpluses, strong Petroleum Levy (PL) collection and significant savings in debt servicing, despite the Federal Board of Revenue (FBR) missing its revenue target agreed with the International Monetary Fund (IMF).
The Finance Division on Thursday released the Summary of Consolidated Federal and Provincial Fiscal Operations, 2025-26, showing that the government posted a fiscal deficit of Rs3.313 trillion i.e. 2.6 percent of GDP against total revenue of Rs19.774 trillion and expenditure of Rs23.087 trillion.
The fiscal position was supported by a combined provincial surplus of Rs1.449 trillion and savings of Rs1.967 trillion in domestic debt servicing. The government also recorded a primary surplus of Rs3.634 trillion, equivalent to 2.9 percent of GDP.
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Petroleum Levy emerged as an important source of non-tax revenue, with collection reaching Rs1.567 trillion during the year. This was Rs69 billion above the upward-revised target of Rs1.498 trillion and Rs99 billion higher than the original target of Rs1.468 trillion.
For 2026-27, the government has set PL collection target of Rs1.676 trillion, around Rs109 billion higher than the actual collection in 2025-26.
Total revenue stood at Rs19.773 trillion, equivalent to 15.6 percent of GDP. Of this, FBR tax collection amounted to Rs13.010 trillion, while non-tax revenue stood at Rs5.554 trillion.
The largest component of non-tax revenue was the State Bank of Pakistan’s surplus profit at Rs2.428 trillion, followed by Petroleum Levy at Rs1.567 trillion. Other receipts included Rs131.631 billion in oil and gas royalties, Rs157.470 billion in mark-up from public sector enterprises and others, Rs52.853 billion in natural gas development surcharge, Rs48.521 billion in passport fees and Rs30.219 billion in PTA profit.
Petroleum Levy on LPG contributed Rs3.523 billion, while captive power plants levy fetched Rs11.358 billion, carbon levy Rs50.159 billion and the NEV adoption levy Rs25.939 billion.
Total expenditure stood at Rs23.087 trillion, including current expenditure of Rs20.686 trillion. Federal current expenditure declined to Rs14.448 trillion from Rs15.695 trillion in 2024-25.Defence expenditure stood at Rs2.587 trillion i.e. 2 percent of GDP.
Debt servicing remained the largest component of federal expenditure, with total mark-up payments at Rs6.948 trillion. Of this, Rs6.030 trillion was paid on domestic debt and Rs917.217 billion on foreign debt. Interest payments fell to around Rs6.95 trillion from Rs8.9 trillion a year earlier — a reduction of nearly Rs2 trillion.
The Finance Division attributed the savings in domestic debt servicing to tight fiscal discipline, cash management and the early retirement of Rs1.9 trillion in domestic debt.
Primary current expenditure was contained at Rs7.501 trillion, with releases to the Benazir Income Support Programme and power sector subsidies kept in line with programme targets. Privatisation proceeds stood at Rs4,065 million in 2025-26.
The pension bill stood at Rs1.002 trillion, while running of the government cost Rs1.033 trillion. Subsidies amounted to Rs1.013 trillion and grants to others Rs1.864 trillion. Transfers to provinces under the NFC Award stood at Rs7.668 trillion, while the federal PSDP expenditure was Rs727.447 billion.
Provincial governments provided a major cushion to the overall fiscal position by generating a combined surplus of Rs1.449 trillion. Punjab posted the largest surplus of Rs914.376 billion, followed by Sindh at Rs349.608 billion, Khyber Pakhtunkhwa at Rs164.843 billion and Balochistan at Rs20.738 billion.
Provincial tax collection increased by Rs230 billion, or 24 percent, to Rs1.209 trillion, while provincial non-tax revenue rose 50 percent to Rs471 billion. Provincial current expenditure stood at Rs6.238 trillion, while development expenditure was recorded at Rs2.701 trillion.
The data also highlighted statistical discrepancy of (-) Rs853.093 billion in fiscal year 2025-26 against (-) Rs443.554 billion till the first nine months of last fiscal year. Statistical discrepancy of the federal government was recorded at (-) Rs448 billion. Primary reasons for this: variations on account of time lag in reporting and book adjustments between SBP, FBR and EAD data.
Statistical discrepancy of the provincial governments was recorded at (-) Rs405 billion. The province-wise reasons for this discrepancy are: Statistical discrepancy for Punjab was recorded at (-) Rs266 billion on account of increase in commercial bank deposits. Statistical discrepancy of KPK and Balochistan governments were reported at (-) Rs95 billion & (-) Rs72 billion respectively. Main reason is the movement in commercial bank deposits.
FBR collected Rs13.010 trillion during 2025-26, an increase of Rs1.266 trillion, or 11 percent, over the previous year. However, it missed the federal tax collection target agreed with the IMF by Rs975 billion.
The shortfall is likely to come under scrutiny during the upcoming fourth review of the Extended Fund Facility (EFF) and the second review of the Resilience and Sustainability Facility (RSF) due next month, covering Pakistan’s economic performance during January-June 2026.
Copyright Business Recorder, 2026