Fiscal Surplus: Pakistan Records 40% Decline in First Quarter FY27

Fiscal Surplus in Pakistan declined by 40% year-on-year to Rs1.274 trillion during the first quarter of fiscal year 2026-27, despite the government meeting three of four key fiscal targets agreed with the International Monetary Fund (IMF).

Higher government expenditure and weaker non-tax revenues slowed the pace of fiscal consolidation, according to the Finance Ministry’s consolidated fiscal operations.

The surplus amounted to 0.9% of gross domestic product (GDP), with total revenue reaching Rs6.004 trillion against expenditure of Rs4.730 trillion. Government spending increased by 15% compared with the corresponding period last year.

The government exceeded its IMF targets for the primary budget surplus, provincial cash surplus and Federal Board of Revenue (FBR) collections. However, provincial tax revenues fell short of their benchmark, while cash grants from the four provinces to the Centre remained considerably below their annual commitment.

The federal government received Rs57.5 billion in provincial cash grants during July-September, representing less than 6% of the Rs1.035 trillion the provinces had agreed to contribute towards security expenditure and projects of national importance.

The arrangement was agreed between the federal and provincial governments in June 2026. However, transfers remained limited during the first three months despite the provinces collectively recording a substantial fiscal surplus.

Punjab contributed Rs32.5 billion, followed by Khyber-Pakhtunkhwa (K-P) with Rs12.7 billion, Sindh with Rs8.5 billion and Balochistan with Rs3.7 billion, according to the Finance Ministry.

A separate report said K-P had previously linked its contribution to a meeting with imprisoned Pakistan Tehreek-e-Insaf founder Imran Khan. It also reported that the federal government had imposed governor’s rule in the province last month.

Meanwhile, the federal government approved allocations of Rs275 billion for six priority water sector projects during the month, according to the report.

Despite limited transfers to the Centre, the provinces collectively recorded a fiscal surplus of Rs599.8 billion, exceeding the IMF’s first-quarter target by approximately Rs83 billion.

Punjab posted the largest provincial surplus at Rs333.3 billion, followed by Sindh at Rs180.6 billion and K-P at Rs102.1 billion. Balochistan was the only province to record a deficit, amounting to Rs16.2 billion.

Punjab generated approximately Rs1.1 trillion in revenue against expenditure of Rs785 billion, while Sindh spent Rs510 billion during the quarter. K-P reported revenue of Rs414 billion and expenditure of Rs312 billion, whereas Balochistan’s expenditure reached Rs191 billion.

The provincial accounts also showed statistical discrepancies of Rs13.2 billion in Punjab, Rs20 billion in Sindh and Rs35 billion in K-P.

However, provincial governments missed their combined IMF tax collection target, generating Rs301 billion against a quarterly benchmark of approximately Rs389 billion. This left a shortfall of Rs88 billion.

Provincial tax collections nevertheless increased by Rs32 billion, or 12%, compared with the same quarter last year. Provincial non-tax revenues rose by Rs24 billion, or 39%, to Rs86 billion.

At the consolidated level, the government reported a primary budget surplus of Rs2.974 trillion, equivalent to 2.1% of GDP, against the IMF’s quarterly target of Rs1.95 trillion.

The primary surplus, which excludes interest payments, exceeded the target by more than Rs1 trillion, largely because the government booked the State Bank of Pakistan’s annual profit during the first quarter.

The central bank contributed Rs1.933 trillion to federal non-tax revenues, although its profit was approximately Rs495 billion, or 20%, lower than in the corresponding period last year.

The concentration of these receipts in the first quarter played a significant role in helping the government exceed its primary surplus target despite the decline in the overall fiscal surplus.

The FBR also met its quarterly revenue target, although two reports provided slightly different collection figures.

The consolidated fiscal statement recorded FBR revenue at Rs3.086 trillion, an increase of Rs202 billion, or 7%, from a year earlier. A separate report placed collections at Rs3.089 trillion against an IMF quarterly target of Rs3.03 trillion, indicating that the benchmark was exceeded by approximately Rs60 billion.

However, tax collection weakened after September, with the FBR accumulating a revenue shortfall of Rs95 billion against its target during the first four months of the fiscal year.

Total tax revenue during July-September stood at Rs3.387 trillion, comprising Rs1.440 trillion in direct taxes and Rs1.646 trillion in indirect taxes.

Sales tax collections amounted to Rs1.137 trillion, while customs duties contributed Rs312.2 billion and federal excise duty generated Rs197.3 billion.

Non-tax revenues stood at Rs2.617 trillion, accounting for approximately 44% of total government receipts. Federal non-tax collections reached Rs2.531 trillion.

According to the separate report, combined federal and provincial non-tax revenues declined by approximately Rs430 billion, or 14%, from the corresponding period last year, primarily due to lower central bank profits.

Petroleum levy collections reached Rs381.8 billion during the quarter, approximately Rs11 billion higher than a year earlier.

Other federal non-tax receipts included Rs38.954 billion in oil and gas royalties, Rs25 billion in mark-up from public sector enterprises, Rs22.257 billion from the carbon levy, Rs16.370 billion from the natural gas surcharge and Rs9.302 billion from the new energy vehicle adoption levy.

On the expenditure side, interest payments reached Rs1.699 trillion, increasing by approximately Rs322 billion, or nearly one-fourth, compared with the previous year.

Domestic debt servicing accounted for Rs1.493 trillion, while payments on foreign debt stood at approximately Rs207 billion.

Defence expenditure amounted to Rs495.4 billion, followed by pension payments of Rs264 billion, federal civil administration expenditure of Rs206.6 billion, grants of Rs281.014 billion and subsidies of Rs84.6 billion.

Consolidated current expenditure reached Rs4.293 trillion during the quarter, while development expenditure and net lending amounted to Rs474.9 billion.

Spending under the Public Sector Development Programme (PSDP) stood at Rs467.7 billion, comprising Rs392.4 billion in provincial development expenditure and Rs75.3 billion at the federal level.

The separate report placed federal development spending at approximately Rs81 billion and total federal expenditure at Rs3.1 trillion during the quarter.

Provincial governments collectively spent Rs1.797 trillion against total revenues of Rs2.397 trillion, including approximately Rs1.9 trillion received through their share of federal taxes.

Provincial current expenditure stood at Rs1.344 trillion, while development expenditure amounted to Rs392.4 billion.

According to the Finance Division, provincial current expenditure was Rs111 billion lower than in the corresponding period last year, while development spending remained within budgetary allocations.

The consolidated fiscal accounts also recorded net external financing of Rs608.9 billion, with gross external inflows of Rs1.247 trillion and external debt repayments of approximately Rs638 billion.

The IMF has projected Pakistan’s fiscal deficit at 3.5% of GDP, excluding grants, under the country’s $7 billion Extended Fund Facility programme.

Finance Minister Muhammad Aurangzeb has said the IMF Executive Board is tentatively expected to meet next month to consider approval of loan tranches worth $1.2 billion.