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

By Salman Khan

Islamabad: Pakistan recorded a 9-year low fiscal deficit of 5.38% in FY25, thanks to 36% YoY growth in both tax and non-tax revenues combined vs. 18% growth in total expenditures. The deficit of 5.38% is better than government’s revised forecast of 5.6% of GDP (earlier budgeted 5.9%) for FY25. Similarly, IMF also projected deficit at 5.6% of GDP.

Topline said that overall revenues have grown 36% YoY amidst 66% increase in non-tax revenues led by robust dividend of Rs2.62trn (vs. Rs0.97trn in FY24) from SBP amidst higher interest rates and expanded balance sheet.

While tax revenues have grown 26% YoY led by 26% growth in FBR revenues. In last 5 years FBR revenues (including PDL) have increased 3.02x from Rs4.3trn in FY20 to Rs12.9trn in FY25. While size of GDP during same period has increased 2.75x from Rs41trn to Rs114.6trn.

Tax to GDP ratio at 7 year high: FBR tax (with PDL) to GDP ratio has increased to 11.3% in FY25, a 7 year high compared to 9.7% in FY24 and average of 9.9% in last five years (FY20 to FY24). We have included PDL in tax ratio as government has significantly raised PDL to substitute it with sales tax may be to avoid sharing with provinces.

Primary Balance at 2.4% of GDP: Pakistan has recorded primary balance of 2.4% of GDP, highest surplus % in recent past (over 2 decades). Higher primary surplus is achieved as revenue growth surpassed the expenditures growth. This surplus of 2.4% of GDP is better than government’s revised projection of 2.2% of GDP and IMF forecast of 2.1%.

Interest expenses as % of FBR taxes down to 76%: Interest expenses as % of FBR taxes has declined to 76% compared to 88% in FY24. The improvement in debt servicing is on the back of controlled growth 9% in interest expenses on the back of lower interest rates.

PSDP spending as % of GDP at 5 year high:  PSDP as % of GDP has increased to 2.6% of GDP compared to 1.9% in FY24, while still lower than historic high of 5% of GDP achieved in FY17.

Outlook: Pakistan is expected to post 3rd consecutive year of primary surplus in FY26 after 2 decades. While overall fiscal deficit is expected to clock in at 4.0-4.1% of GDP in FY26, lowest in 2 decades.

Meanwhile,Arif Habib research said that Pakistan’s fiscal operations for the year ended June 2025 have shown marked improvement, as the overall budget deficit narrowed to Rs 6,168 billion, down 14% compared to Rs 7,207 billion in FY24.

The robust revenue growth has driven improvement, according to fiscal data released by the Ministry of Finance and compiled by Arif Habib Limited.

Total gross revenue receipts surged by 36% year-on-year, reaching Rs16,801 billion. This was backed by a 26% increase in FBR taxes, which amounted to Rs 11,744 billion, and a 66% rise in non-tax revenue, which stood at Rs 5,056 billion.

After deducting the provincial share of Rs 6,854 billion, net federal revenue receipts clocked in at Rs 9,947 billion, up 40% year-on-year.

On the expenditure side, total spending surged 15% to Rs 17,036 billion. Current expenditure remained the dominant component, rising 12% to Rs 15,815 billion. Development spending saw a 40% jump to Rs 1,019 billion.

A notable achievement was the turnaround in the primary balance, which posted a surplus of Rs 2,719 billion in FY25—an improvement of 185% from the previous year.

“The substantial growth in revenue—particularly non-tax collections—played a pivotal role in reducing the fiscal gap, despite rising expenditures and debt servicing costs,” an analyst at Arif Habib Limited commented.

Deficit Swells in Final Quarter

Despite the yearly improvement, the fiscal situation deteriorated sharply in the final quarter.

The overall budget deficit for 4QFY25 ballooned to Rs 3,198 billion, up 123% from Rs 1,432 billion in 3QFY25. Similarly, the primary balance turned negative at Rs 749 billion in 4QFY25, compared to a Rs 135 billion deficit in the preceding quarter—reflecting a 455% quarter-on-quarter decline.

Analysts attribute this quarterly slippage to higher-than-usual spending and delayed revenue inflows.PKR Rises for Ninth Straight Session

Provincial Surplus Helps Cushion the Blow

The provincial governments recorded a cumulative surplus of Rs 921 billion, providing some relief to federal fiscal pressures. This was a significant jump from Rs 518 billion in FY24.

Outlook

While the annual fiscal indicators show progress in consolidation efforts, the sharp rise in the fourth-quarter deficit raises concerns about fiscal discipline and expenditure controls, especially ahead of the next IMF review,” analysts said.