Pakistan’s FY27 budget reflects continued fiscal discipline, although questions remain over the sustainability of recent improvements. Fitch Ratings expects stronger fiscal performance than historical trends despite ongoing structural challenges.
The ratings agency said Pakistan’s public finances have improved significantly in recent years. Authorities estimate the overall general government deficit at 3.0 percent of GDP in FY26.
The FY26 outcome was lower than both the official target and Fitch’s expectations. Meanwhile, Pakistan also recorded a historic primary surplus of 2.5 percent of GDP.
Fitch Highlights Revenue and Spending Challenges
According to Fitch, lower interest costs played a major role in improving fiscal performance. Policy rate cuts and cheaper domestic debt refinancing reduced government borrowing expenses.
Additionally, higher State Bank of Pakistan profit transfers increased non-tax revenue during FY26. Reduced capital spending also helped offset a tax revenue shortfall.
However, Fitch warned that these supportive factors may not continue in FY27. Therefore, it forecasts an overall fiscal deficit of 4.0 percent of GDP.
The agency also expects a primary surplus of 1.9 percent of GDP. This remains slightly below the government’s FY27 budget targets.
Debt and Provincial Risks Remain
Fitch identified Pakistan’s weak revenue base as a major fiscal constraint. It projects tax revenue at 10.3 percent of GDP and total revenue at 13.5 percent.
The agency expects State Bank dividend income to decline as interest rates ease. Consequently, the government may have limited options for further spending reductions.
Fitch also noted that debt affordability remains a significant weakness despite recent improvements. It forecasts the government’s interest-to-revenue ratio at 40.4 percent during FY27.
Furthermore, the agency warned that provincial budget implementation could affect overall fiscal performance. It highlighted agricultural income tax collection as an area requiring stronger coordination between federal and provincial governments.
