Pakistan’s fiscal surplus shrank 40 percent in the first quarter of the current fiscal year, falling to Rs1.273 trillion (0.9 percent of GDP) in July-September 2026, from Rs2.12 trillion (1.7 percent of GDP) in the same period last year, according to fiscal operations data released by the Ministry of Finance and reported by Dawn on Saturday. The decline came even as actual tax collection rose, with the shortfall driven almost entirely by a sharp drop in non-tax revenue, chiefly State Bank of Pakistan (SBP) profit transfers to the federal government.
The primary surplus — the balance before interest payments are counted — also narrowed, falling 15 percent to Rs2.97 trillion (2.1 percent of GDP) from Rs3.5 trillion (2.8 percent of GDP) a year earlier. Total revenue fell to Rs6.004 trillion from Rs6.2 trillion, something Dawn described as “a rare happening” in absolute terms given inflation and nominal economic growth.
Tax revenue actually increased to Rs3.387 trillion from Rs3.153 trillion. The entire decline came from non-tax revenue, which fell to Rs2.6 trillion from Rs3.046 trillion — mainly because SBP profit transfers dropped to Rs1.933 trillion from Rs2.43 trillion. Petroleum levy receipts rose slightly, to Rs382 billion from Rs372 billion.
On the spending side, total expenditure rose 16 percent to Rs4.73 trillion from Rs4.08 trillion, pushed up mainly by interest payments on government debt, which jumped more than 23 percent to Rs1.7 trillion from Rs1.378 trillion. Defence spending rose to Rs496 billion from Rs447 billion, development spending edged up to Rs468 billion from Rs440 billion, and pension payments climbed 10 percent to Rs495 billion. Subsidies were cut to Rs84.6 billion from Rs120 billion.
| Indicator | Q1 FY27 (Jul-Sep 2026) | Q1 FY26 (Jul-Sep 2025) | Change |
|---|---|---|---|
| Fiscal surplus | Rs1.273tr (0.9% of GDP) | Rs2.12tr (1.7% of GDP) | Down 40% |
| Primary surplus | Rs2.97tr (2.1% of GDP) | Rs3.5tr (2.8% of GDP) | Down 15% |
| Total revenue | Rs6.004tr (4.2% of GDP) | Rs6.2tr (4.9% of GDP) | Down ~3% |
| – Tax revenue | Rs3.387tr (2.4% of GDP) | Rs3.153tr (2.5% of GDP) | Up ~7% |
| – Non-tax revenue | Rs2.6tr (1.8% of GDP) | Rs3.046tr (2.4% of GDP) | Down ~15% |
| – of which SBP profit transfers | Rs1.933tr | Rs2.43tr | Down ~20% |
| Total expenditure | Rs4.73tr (3.3% of GDP) | Rs4.08tr (3.2% of GDP) | Up 16% |
| – Interest payments | Rs1.7tr (1.2% of GDP) | Rs1.378tr (1.1% of GDP) | Up 23%+ |
| Combined provincial cash surplus | Rs600bn | Rs781bn | Down 23% |
| – Balochistan | Rs16bn deficit | Rs53bn surplus | Swing to deficit |
The provincial picture was mixed. Combined cash surpluses of the four provinces fell 23 percent to Rs600 billion from Rs781 billion. Punjab’s surplus narrowed to Rs333 billion from Rs442 billion and Sindh’s to Rs181 billion from Rs209 billion, while Khyber Pakhtunkhwa’s surplus actually grew 33 percent to Rs102 billion from Rs77 billion. Balochistan swung from a Rs53 billion surplus a year earlier into a Rs16 billion deficit this quarter — a reversal the Ministry of Finance data did not explain.
The figures were independently corroborated by Business Recorder, which reported matching numbers across the fiscal surplus, primary surplus, revenue, expenditure and provincial breakdowns, confirming the scale of the slippage.
The weaker fiscal performance comes as Islamabad continues to work with the International Monetary Fund on program targets, after the two sides reached a staff-level agreement on the next $1.2 billion tranche under the ongoing loan programme — an arrangement under which fiscal benchmarks, including revenue collection and the primary balance, are tracked closely by the Fund.
Our Opinion
The headline number masks a more telling story: the real tax base actually grew a modest 7 percent, while the bulk of the swing came from a near-fifth drop in State Bank profit transfers that successive governments have leaned on for years to flatter the books — a reminder that fiscal space built on central-bank windfalls rather than a broadening tax net is inherently fragile and can vanish the moment conditions change; at the same time, interest payments now eating up a larger share of a shrinking pie, and Balochistan’s unexplained swing from a comfortable surplus into deficit, both deserve closer scrutiny than a single quarterly data release usually invites, since neither a growing debt-servicing burden nor a sudden provincial reversal is likely to resolve itself without a deliberate policy response.
