ISLAMABAD: Pakistan posted its smallest fiscal deficit in nine years at 5.38% for the 2025 fiscal year (FY25). This is more than the revised government estimate of 5.6% and the IMF‘s estimate of 5.6%, Top line Securities reported.
The primary cause of this enhancement is robust revenue growth. Overall revenues went up by 36% year-on-year (YoY), which was significantly greater than the 18% improvement in expenditures. Non-tax revenues saw the highest increase, up by 66%. The foremost contributor was the Rs2.62 trillion dividend paid by the State Bank of Pakistan (SBP), versus Rs0.97 trillion in FY24. This resulted from elevated interest rates and a larger SBP balance sheet.
Tax collections also strengthened, with a 26% YoY improvement, primarily because of an equally 26% growth in Federal Board of Revenue (FBR) collection. In the last five years, FBR revenues plus Petroleum Development Levy (PDL) have increased from Rs4.3 trillion in FY20 to Rs12.9 trillion in FY25. In the same period, Pakistan’s GDP increased from Rs41 trillion to Rs114.6 trillion.
The FBR tax-to-GDP ratio hit 11.3% in FY25, a seven-year high, from 9.7% in FY24. This increase is primarily on account of the increase in PDL, which the government opted for instead of sales tax to pre-empt revenue sharing with provinces.
Pakistan also reported a primary surplus of 2.4% of GDP in FY25, the highest on record. This was higher than the government’s estimate of 2.2% and the IMF’s 2.1%.
Interest costs fell to 76% of FBR taxes from 88% in FY24 due to declines in interest rates. Expenditure under the Public Sector Development Programme increased to 2.6% of GDP in FY25 from 1.9% in FY24 but short of the record high of 5% in FY17.
In the future, Pakistan is anticipated to have a primary surplus for the third consecutive year in FY26. The fiscal deficit is also anticipated to decline to about 4.0–4.1% of GDP, which would be 20-year low.
