Pakistan Budget Surplus: Pakistan has achieved a remarkable fiscal turnaround in the first quarter of FY26, reporting a budget surplus of Rs. 2.1 trillion, equivalent to approximately 1.6% of GDP. This significant improvement contrasts sharply with the budget deficit experienced during the last quarter of FY25. Analysts attribute much of this positive outcome to a substantial profit transfer from the State Bank of Pakistan (SBP).
Key Drivers Behind Pakistan’s Budget Surplus FY26
The surge in Pakistan’s finances this quarter was primarily fueled by the SBP’s profit payment, which totaled around Rs. 2.42 trillion. This contribution alone provided a substantial boost to the government’s cash position. According to Topline Research, the central bank’s profits expanded due to large-scale market operations conducted over the past year, which significantly enhanced its earnings.
Despite the encouraging headline figures, underlying fiscal pressures persist. Excluding the SBP’s one-time profit, the government’s finances reflect a minor deficit of 0.2% of GDP, with a primary surplus (excluding interest payments) of just 0.8%. This indicates that while the overall picture is positive, structural challenges remain.
Government Debt Repayment and Fiscal Management
The government strategically utilized a portion of the surplus to strengthen its fiscal position. During the quarter, domestic debt repayments amounted to Rs. 2 trillion, while external loans worth Rs. 38 billion were cleared. Interest payments stood at Rs. 1.4 trillion, representing 48% of total Federal Board of Revenue (FBR) tax collection—an improvement over 51% recorded in the same period last year.
Public Spending: Development and Defense
Public expenditure continued to rise, reflecting the government’s developmental priorities. Public Sector Development Program (PSDP) spending increased by 7% year-on-year to Rs. 295 billion, supporting infrastructure and socio-economic initiatives. Meanwhile, defense spending grew by 9%, reflecting ongoing commitments to national security. Transfers to provincial governments accounted for 56.3% of total tax revenue, maintaining a steady flow of funds compared to the previous fiscal year.
Outlook for FY26 Budget Deficit
Economists predict that Pakistan’s full-year budget deficit may reach 4.6% of GDP, slightly above the government’s target of 3.9%. The elevated deficit is expected due to rising spending demands, flood recovery efforts, and slower-than-expected economic growth. While the first quarter’s surplus is encouraging, fiscal discipline and revenue mobilization will remain critical to achieving year-end targets.
Conclusion
Pakistan’s budget surplus FY26 signals a promising start to the fiscal year, primarily driven by the SBP’s profit transfer and strategic debt management. However, the underlying fiscal pressures suggest that careful monitoring of expenditures and revenue collection will be essential to maintain long-term economic stability.
