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August 05, 2025: Pakistan’s fiscal performance in FY25 has surprised positively, as the country posted a 9-year low fiscal deficit of 5.38% of GDP, outperforming both government and IMF estimates of 5.6%. This marks a significant milestone in fiscal consolidation and is largely credited to impressive growth in revenues.
The improvement came on the back of 36% year-on-year (YoY) growth in total revenues, including a remarkable 66% surge in non-tax revenues, mainly due to a record Rs2.62 trillion dividend from the State Bank of Pakistan (SBP). In comparison, the dividend stood at Rs0.97 trillion in FY24. On the other hand, total expenditures grew at a slower pace of 18% YoY, allowing for substantial deficit compression.
Tax revenues also posted strong growth of 26% YoY, with Federal Board of Revenue (FBR) collections, including Petroleum Development Levy (PDL), reaching Rs12.9 trillion, compared to Rs4.3 trillion in FY20. Over the past five years, FBR revenues have grown 3.02x, outpacing the GDP’s 2.75x expansion from Rs41 trillion to Rs114.6 trillion.
Tax-to-GDP Ratio Hits 7-Year High
Pakistan’s FBR tax-to-GDP ratio (including PDL) climbed to 11.3% in FY25, a 7-year high, compared to 9.7% in FY24 and a five-year average of 9.9%. The rise is partly attributed to increased reliance on PDL, potentially aimed at avoiding provincial revenue sharing tied to GST.
Primary Surplus at 20-Year High
The country recorded a primary surplus of 2.4% of GDP—its highest in over two decades—exceeding the government’s revised target of 2.2% and IMF’s estimate of 2.1%. The surplus is a result of revenues growing faster than expenditures.
Debt Servicing Costs Improve
Interest payments, a major burden in past years, declined to 76% of FBR tax revenues, down from 88% in FY24, supported by just 9% growth in interest expenses due to easing policy rates.
Public Sector Development Programme Spending Rises
Pakistan’s Public Sector Development Programme (PSDP) spending increased to 2.6% of GDP, a five-year high. Though still below the historic peak of 5% in FY17, it signals the government’s commitment to development spending.
FY26 Outlook: Deficit May Hit 20-Year Low
Looking ahead, Pakistan is projected to post a third consecutive primary surplus in FY26, a rare trend last seen two decades ago. The overall fiscal deficit is expected to narrow further to 4.0–4.1% of GDP, potentially the lowest in 20 years.
