Pakistan’s four provinces contributed nearly Rs1.2 trillion to the federal government during the first half of the current fiscal year. The transfers reflect efforts to meet IMF-directed targets under the $7 billion Extended Fund Facility (EFF). Official Ministry of Finance data for July–December 2025 shows provinces returned Rs1.18 trillion in cash, just Rs285 billion below the full-year target of Rs1.464 trillion.
Compared to the same period last year, provincial surpluses rose significantly. Provinces had previously transferred Rs775 billion, falling short of the Rs1.2 trillion goal.
Punjab Leads, Balochistan Lags
Punjab delivered the largest contribution of Rs609 billion, followed by Sindh with Rs354 billion. Khyber Pakhtunkhwa added Rs175 billion, marking a substantial increase despite being an opposition-led province. Balochistan contributed Rs41 billion, down from Rs92 billion last year, highlighting capacity constraints in smaller provinces.
The combined transfers helped the federal government post a six-month fiscal surplus of Rs542 billion. This compares favorably with last year’s Rs1.5 trillion deficit, representing nearly a fourfold improvement.
Revenue-to-GDP Ratio Shows Limited Gains
Despite the increase in provincial contributions, Pakistan’s revenue-to-GDP ratio declined slightly. It fell to 8.2 percent during July–December 2025, compared to 8.5 percent in the same period last year. The drop affected both tax and non-tax revenues.
The tax-to-GDP ratio slipped from 5.3 percent to 5.2 percent, while non-tax revenue fell from 3.2 percent to 3.1 percent, even with a 50 percent increase in petroleum development levy collection, which reached Rs823 billion.
Federal Revenue and Expenditure Trends
Federal revenue collection also showed minor setbacks. Total revenue fell to 4.8 percent of GDP from 4.9 percent last year, primarily due to a decline in direct taxes from 2.4 percent to 2.3 percent of GDP. Customs and excise duties remained stable, while general sales tax declined from 1.7 percent to 1.6 percent of GDP.
On the expenditure side, total spending dropped to 7.8 percent of GDP from 9.9 percent last year. This reduction was largely due to lower interest payments following the State Bank’s policy rate cut from 22 percent to 11 percent. Current expenditure declined to 7.4 percent of GDP from 8.8 percent last year.
Provincial Revenue Growth
Provincial tax collection grew 28 percent to Rs569 billion, up Rs126 billion from the same period last year. Non-tax revenue also increased to Rs155 billion, marking an 8 percent rise. These gains reflect efforts to strengthen provincial fiscal management amid a challenging macroeconomic environment.
Despite higher transfers and stronger provincial collections, primary balance — which excludes interest payments — remained largely unchanged at 3.2 percent of GDP, signaling limited improvement in controlling government expenses.
Outlook
The fiscal performance shows that provinces are contributing significantly to federal stability. However, declining revenue ratios highlight ongoing challenges in taxation and expenditure management. Sustained reforms, improved documentation, and enhanced provincial capacity are crucial to maintain fiscal health and achieve IMF targets.
