Pakistan Narrows Fiscal Deficit as Levies Boost Revenue
Pakistan’s fiscal position showed a notable improvement in the first 11 months of FY26, as stronger non-tax revenues and provincial surpluses helped the government contain the overall budget deficit to 1.6% of GDP. The latest figures, reported from Islamabad on Sunday, suggest that Islamabad has managed to keep its deficit path within the limits agreed under its broader fiscal consolidation strategy.
According to official data cited in the report, the federal budget deficit stood at Rs3.34 trillion, or 2.6% of GDP, during July-May of FY26. However, after accounting for a provincial revenue surplus of Rs1.31 trillion, the overall fiscal deficit narrowed to Rs2.03 trillion, equal to 1.6% of GDP during the same period.
The improvement was largely supported by revenue from the petroleum levy, the climate support levy and State Bank of Pakistan profits. These three non-tax revenue streams generated Rs4.82 trillion in the first 11 months, bringing the government close to its full-year non-tax revenue target of Rs5.14 trillion.
The report said the petroleum levy alone contributed Rs1.432 trillion, while the climate support levy added Rs45.968 billion. The State Bank’s surplus profit remained the largest single contributor among these heads, reaching Rs2.428 trillion and strengthening the federal government’s fiscal space at a time when debt servicing remains a major burden.
On the tax side, the Federal Board of Revenue collected Rs11.228 trillion in the July-May period. Gross federal revenue receipts reached Rs16.08 trillion, but after transfers of Rs6.6 trillion to provinces under the NFC Award and related grants, net federal receipts came down to Rs9.38 trillion.
Expenditure pressures, however, remained significant. Total spending was recorded at Rs12.73 trillion in the first 11 months, with current expenditure accounting for Rs12.15 trillion. Mark-up payments on domestic and foreign loans consumed Rs6.163 trillion, showing that debt servicing continues to absorb more than half of current expenditure.
Defence spending stood at Rs2.11 trillion during the period, while pay, pensions, subsidies, civil administration and other heads collectively consumed Rs3.879 trillion. Development spending under the Public Sector Development Programme reached Rs578 billion, with Planning Minister Ahsan Iqbal cited as saying that the ministry had fully utilised its allocated development funds for the second consecutive year by the end of FY26.
The fiscal numbers are important because Pakistan has been under pressure to demonstrate budget discipline, maintain provincial surpluses and reduce reliance on borrowing. The improved deficit position may strengthen the government’s case with international lenders and investors, but it also highlights the heavy dependence on levies and central bank profits rather than broad-based tax expansion.
For ordinary Pakistanis, the impact is mixed. A lower deficit can support macroeconomic stability, improve confidence and reduce pressure on external financing needs, but reliance on petroleum-related revenue can also keep fuel prices politically and economically sensitive. The government will now wait for reconciled full-year fiscal figures from the Ministry of Finance, expected in the coming weeks, to confirm whether the FY26 deficit remained within the 3% of GDP target.