Pakistan records 9-year low fiscal deficit of 5.38% in FY25

ISLAMABAD: Pakistan posted a nine-year low fiscal deficit of 5.38 percent of GDP in FY25, supported by a strong 36 percent year-on-year increase in combined tax and non-tax revenues, compared to an 18 percent rise in total expenditures, according to a report by Topline Securities released on Tuesday.

The deficit came in lower than the government’s revised projection of 5.6 percent (previously budgeted at 5.9 percent) and also beat the IMF’s forecast of 5.6 percent for the fiscal year.

Overall revenues surged 36 percent year-on-year, driven by a sharp 66 percent increase in non-tax revenues. This jump was largely due to a robust Rs2.62 trillion dividend from the State Bank of Pakistan (SBP), up from Rs0.97 trillion in FY24, amid higher interest rates and an expanded balance sheet.

Tax revenues grew 26 percent year-on-year, led by a similar 26 percent rise in Federal Board of Revenue (FBR) collections.

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Over the past five years, FBR revenues (including Petroleum Development Levy or PDL) have increased 3.02 times, from Rs4.3 trillion in FY20 to Rs12.9 trillion in FY25. During the same period, the size of the GDP has grown 2.75 times, from Rs41 trillion to Rs114.6 trillion.

Tax-to-GDP ratio at 7-year high

The FBR tax-to-GDP ratio (including PDL) rose to 11.3 percent in FY25, the highest in seven years, compared to 9.7 percent in FY24 and an average of 9.9 percent from FY20 to FY24. The report noted that PDL was included in the ratio as the government has significantly raised it, possibly as a substitute for sales tax to avoid revenue sharing with provinces.

Primary balance at 2.4% of GDP

Pakistan recorded a primary surplus of 2.4 percent of GDP, the highest in over two decades, as revenue growth outpaced expenditure increases. This surplus also surpassed the government’s revised estimate of 2.2 percent and the IMF’s forecast of 2.1 percent.

Interest expenses down to 76% of FBR taxes

Interest payments as a percentage of FBR tax revenues fell to 76 percent in FY25, down from 88 percent in FY24. This improvement in debt servicing came due to a controlled 9 percent growth in interest expenses, aided by lower interest rates.

PSDP spending at 5-year high

Public Sector Development Programme (PSDP) spending increased to 2.6 percent of GDP in FY25, up from 1.9 percent in the previous year. However, it still remains below the historic high of 5 percent recorded in FY17, the report added.

Outlook

Pakistan is expected to post its third consecutive year of primary surplus in FY26, a first in over two decades. Meanwhile, the overall fiscal deficit is projected to decline further to 4.0–4.1 percent of GDP in FY26, which would be the lowest in 20 years.

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