Business Recorder
Pakistan is projected to post a 21-year low budget deficit of 3.6% of GDP (gross domestic product) in the outgoing fiscal year 2025-26 (FY26), showing the government is maintaining a tight fiscal discipline under the ongoing International Monetary Fund (IMF) progrmme, according to a local research house. The deficit stood at 5.4% of GDP in the previous year FY25. A budget deficit (or fiscal deficit) occurs when a government’s total expenditures exceed its total revenues, meaning the state is spending more than it earns. “The significant improvement in fiscal balance is [expected] on the back of restrictive fiscal policy adapted by the government under the IMF programme with control over growth in expenditures and decent growth in total revenues (including both tax and non tax revenues),” Topline Securities said in brief comment on Tuesday. “The State Bank of Pakistan’s (SBP) share of profit of Rs2.4 trillion to the federal government in FY26 played a key role in likely achievement of the 21-year low fiscal deficit,” Topline Research Director Shankar Talreja told Business Recorder . The Ministry of Finance reported recently the fiscal deficit contracted by 0.7% of GDP in the first nine months ended March 31, 2026. The primary surplus (excluding interest payment on debt from overall fiscal deficit) stood at 3.2% of GDP in the nine months period. The ministry’s numbers suggested the higher profit from the central bank, a 45% jump in petroleum development levy (PDL) to Rs1.2 trillion in the first nine months and a notable cut in interest payment by early retirement of domestic debt played a key role in managing a tight fiscal policy by the government in the year. “As a result of tight fiscal discipline, cash management and early retirement of Rs1.9 trillion domestic debt, savings of Rs1.495 trillion in servicing of domestic debt were observed as compared to the same period last fiscal year [FY25],” the ministry said in its nine-month fiscal report released recently. Talreja further said the fiscal deficit would increase to estimated 3.2% for full-year FY26 from negative 0.7% in the first nine-month due to estimated higher expenditures in the outgoing fourth quarter (Apr-Jun FY26). “The historical trends suggest the government releases higher funding for public projects in last quarters of almost every year,” he said. A 150 basis points increase in tax to GDP ratio in the ongoing IMF profit till date is another leading reason for the expected low fiscal deficit in FY26. Chase Securities Director Research Yousuf M. Farooq said the fiscal deficit would remain low in the year under review even if the central bank had not shared its profit at Rs2.4 trillion to the government. The government has managed a prudent fiscal policy in the wake of political stability in the year. “The political stability has allowed the government to print lesser amount of new currency note in FY26 compared to in the years of instability,” he maintained. It may be noted that the Federal Board of Revenue (FBR) provisionally collected Rs11.227 trillion during July-May (2025-26) against the downward revised target of Rs12.095 trillion, reflecting a shortfall of Rs868 billion. The tax collection target of the FBR was revised downward - from Rs14.307 trillion to Rs13.979 trillion for FY2025-26, reflecting a decrease of Rs328 billion. Now, the tax machinery is facing an impossible task to collect a huge amount of Rs2.752 trillion in the last month of the current fiscal year, i.e., June 2026.
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