The figure marks the country’s lowest fiscal deficit in more than two decades. Finance Minister’s Adviser Khurram Schehzad said the improvement reflects stronger revenues and tighter spending controls.
Fiscal Deficit Shows Significant Improvement
Pakistan’s fiscal deficit stood at 7.9% of GDP in FY2022. However, it has declined consistently over the past three years.
Schehzad said the government also recorded a primary surplus of 2.9% of GDP during FY2025-26. This measure excludes interest payments and indicates the government’s financial position before debt-servicing costs.
He described the latest results as Pakistan’s 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, the primary surplus increased from 0.9% of GDP in FY2024 to 2.4% in FY2025. It then reached 2.9% in FY2026, marking its highest level since FY2021.
Schehzad said the fiscal deficit improved by 5.2 percentage points of GDP within three years. Meanwhile, the primary balance improved by 3.9 percentage points during the same period.
Revenues Rise as Interest Payments Decline
Pakistan’s overall fiscal deficit reached Rs3.31 trillion during FY2025-26. At the same time, the primary surplus stood at Rs3.63 trillion.
Government revenues reached Rs19.8 trillion, including Rs14.2 trillion in tax collections. Meanwhile, interest payments declined significantly during the financial year.
The government paid around Rs6.95 trillion in interest during FY2025-26. That compares with Rs8.9 trillion recorded during the previous fiscal year.
“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.
Debt Position and Economic Outlook
Schehzad also highlighted slower debt growth and a decline in the debt-to-GDP ratio. According to his statement, the ratio fell to around 68%.
The improvement could reduce financing pressures and create additional fiscal space for development spending.
Moreover, Pakistan’s fiscal consolidation has coincided with improvements in its external position. Foreign exchange reserves have been rebuilt, while external accounts have also strengthened.
S&P Global Ratings upgraded Pakistan’s sovereign credit rating to B from B- in July. Schehzad said the agency recognised faster fiscal consolidation, stronger revenue collection and improving reserves.
“Together, these improvements provide a stronger foundation for investment, development and sustainable, inclusive growth,” he maintained.
