Rs1.18 trillion surplus transferred to centre as revenue growth slows

WEB DESK: Pakistan’s four provinces collectively transferred Rs1.18 trillion in cash surplus to the federal government during the first half of the current fiscal year (July–December 2025), coming close to meeting the annual target set under the International Monetary Fund’s (IMF) USD7b Extended Fund Facility (EFF), according to official fiscal operations data released by the Ministry of Finance.

The provinces fell short by Rs285b of the full-year target of PKR1.464 trillion, but their performance marked a significant improvement over the corresponding period last year, when the surplus stood at Rs775b against a budgeted target of Rs1.2 trillion. Punjab led contributions with a cash surplus of Rs609b up 83% from Rs333 billion in the same period last year followed by Sindh at PKR354b (up 34% from Rs264b), Khyber Pakhtunkhwa at Rs175b (up 103% from Rs86 billion), and Balochistan at PKR41b (down from Rs92b last year).

Federal Surplus Improves Amid Slipping Revenue Metrics

The strong provincial surpluses contributed to the federal government achieving a PKR542b fiscal surplus in the July–December period, a sharp turnaround from a PKR1.5 trillion deficit in the same months of the previous fiscal year, equivalent to 0.4% of GDP compared with a 1.3% deficit last year. However, despite ongoing reforms, the overall revenue-to-GDP ratio declined to 8.2% from 8.5% the previous year.

The tax-to-GDP ratio slipped to 5.2% (from 5.3%), while non-tax revenue stood at 3.1% (from 3.2%). Federal revenue collection as a share of GDP fell to 4.8% from 4.9%, driven by a drop in direct taxes to 2.3% of GDP (from 2.4%), a decline in general sales tax to 1.6% (from 1.7%), with customs and excise duties remaining static at 0.5% and 0.3% respectively, while provincial revenue collection held steady at 0.4% of GDP.

The Federal Board of Revenue collected Rs6.161 trillion in taxes during the half-year, up 10% or Rs536b from the previous year. Non-tax revenue reached Rs3.799 trillion, including Rs2.428 trillion in profits from the State Bank of Pakistan, while the petroleum development levy surged 50percent to Rs823b. Provincial tax collection rose 28 percent to Rs569b (up Rs126 billion), and provincial non-tax revenue increased 8 percent to Rs155b.

Total expenditure fell sharply to 7.8percent of GDP from 9.9percent last year, largely due to reduced interest costs following the State Bank’s policy rate cut to 11% from 22percent, with current expenditure dropping to 7.4 percent of GDP from 8.8percent. The primary balance showed only marginal improvement at 3.2% of GDP compared with 3.1percent last year. The data highlights the provinces’ efforts to generate surpluses in line with IMF benchmarks, aiding the federal fiscal position, but also underscores persistent challenges in broadening the tax base and boosting overall revenue mobilisation despite ongoing policy measures.