Pakistan Records Rs1.3 Trillion Fiscal Surplus in 1QFY27 as Primary Surplus Reaches 2.1% of GDP

Pakistan posted a fiscal surplus of 0.9% of GDP in the first quarter of FY27, down from 1.7% a year earlier, as lower SBP profits and higher interest payments weighed on the overall balance.

Pakistan recorded a fiscal surplus of Rs1.3 trillion, equivalent to 0.9% of GDP, during the first quarter of FY2026–27 (1QFY27), compared with Rs2.1 trillion or 1.7% of GDP in the same period last year.

The primary surplus stood at Rs3 trillion, or 2.1% of GDP, against Rs3.5 trillion or 2.8% of GDP in 1QFY26. The latest figure also exceeded the International Monetary Fund’s (IMF) full-year FY27 primary surplus target of 2.0% of GDP.

However, the lower overall fiscal surplus reflects weaker revenue growth and rising expenditure. The decline was primarily linked to a 20% year-on-year fall in State Bank of Pakistan (SBP) profits, which dropped to Rs1.9 trillion.

Government expenditure increased 16% year-on-year during the quarter. Interest payments rose 23% to Rs1.7 trillion, partly reflecting higher borrowing costs following the 100-basis-point policy rate increase in May 2026.

Average Treasury bill yields also increased to 11.6% in 1QFY27 from 10.8% in the corresponding period last year. Meanwhile, domestic debt grew 9% year-on-year in August 2026.

On a quarterly basis, however, interest payments declined 15%, reflecting seasonal trends and debt maturity patterns, with a significant portion of maturities falling in the December and June quarters.

Excluding interest payments, government expenditure increased 12% year-on-year. Meanwhile, tax revenue rose 7% to Rs3.4 trillion, while Federal Board of Revenue (FBR) collections also increased 7% to Rs3.1 trillion.

Development spending recorded a significant increase during the quarter. Public Sector Development Programme (PSDP) expenditure rose 59% year-on-year to Rs468 billion, while defence spending increased 11% to Rs495 billion. In contrast, subsidies and grants declined 17% to Rs366 billion.

The fiscal surplus, combined with net external financing of Rs609 billion and non-bank financing of Rs592 billion, enabled the government to retire Rs2.5 trillion in bank borrowing during 1QFY27.

Gross external inflows reached Rs1.25 trillion, including Rs910 billion in programme loans. External repayments stood at Rs638 billion during the period. The government recorded no proceeds from privatisation in the first quarter, compared with Rs4 billion in the preceding quarter.

The fiscal outlook for FY27 remains focused on maintaining a primary surplus while managing debt servicing costs and government expenditure. The research estimate projects the fiscal deficit at 3.6% of GDP for the full fiscal year, with the primary surplus expected to reach 2.0% of GDP.

The first-quarter surplus also requires consideration of seasonal factors, as government finances typically receive a boost from the transfer of SBP profits during this period.