ISLAMABAD:
Pakistan’s fiscal situation improved markedly in the last financial year, recording a third consecutive primary budget surplus of Rs3.6 trillion on the back of higher petroleum levy collection and expenditure rationalisation after revenues fell short of the goals.
As a result, the country met the International Monetary Fund’s (IMF) non-negotiable primary surplus condition despite lower tax collection and slightly lower provincial cash surpluses.
According to the fiscal operations summary released by the Ministry of Finance on Thursday, the federal government also booked one of its lowest budget deficits at only Rs4.8 trillion in the fiscal year 2025-26, Rs1.7 trillion less than the target. The overperformance was mainly due to Rs1.3 trillion less than budgeted interest payments, Rs101 billion higher petroleum levy collection and Rs82 billion less spending on federal development projects.
The improved fiscal situation helped arrest double-digit growth in public debt, which grew by 7% in the last financial year.
However, after improving the fiscal situation under the IMF umbrella, the government of Prime Minister Shehbaz Sharif now faces the bigger challenge of providing relief to people who have borne the brunt of fiscal consolidation since 2022.
The unadjusted primary budget surplus – the revenues after paying interest cost – surged to Rs3.63 trillion, exceeding the IMF target by Rs464 billion. The primary surplus was equal to 2.6% of GDP. The IMF had set the primary surplus target of Rs3.16 trillion. Officials said that even after applying some adjustments on account of foreign project loans and higher circular debt flow, the government was in a comfortable position to meet the IMF condition.
An IMF mission is expected to visit Islamabad in the third week of September to review economic performance for the last fiscal year, undertake a comprehensive assessment of Pakistan’s economy under Article-IV and recommend the release of the fifth loan tranche of $1.1 billion.
The overall budget deficit, inclusive of provincial savings, remained at Rs3.3 trillion, Rs1.7 trillion less than the target set in the budget. The federal deficit was Rs4.8 trillion, calculated after excluding provincial cash surpluses, better than the budget target by Rs1.74 trillion.
The four provincial governments generated Rs1.45 trillion cash surplus, missing the IMF condition by just Rs14 billion. The Punjab government saved Rs914 billion, Sindh had a cash surplus of Rs350 billion, Khyber-Pakhtunkhwa (K-P) Rs165 billion and Balochistan Rs21 billion in the last fiscal year.
The provincial governments exceeded their revenue collection condition by the IMF by Rs18 billion, collecting little over Rs1.2 trillion in taxes.
The Federal Board of Revenue (FBR) collected Rs13 trillion in the last fiscal year, nearly Rs1 trillion less than the IMF’s revised target. The FBR’s tax-to-GDP ratio remained stagnant at 10.3%. The 11% increase in FBR tax collection compared to the preceding year was equal to nominal GDP growth, suggesting the FBR could not materialise revenue on account of Rs700 billion additional tax and enforcement measures.
The non-tax revenue collection target was also missed by Rs63 billion. Non-tax revenue amounted to nearly Rs5.1 trillion, including Rs2.4 trillion profits received from the central bank.
Petroleum levy collection surged to Rs1.567 trillion, a 28% increase compared to the previous year. The collection was Rs101 billion more than the IMF target. Excessive collection was equal to 25 days of Rs80 per litre relief on petrol and high-speed diesel.
For the current fiscal year, the government has agreed to a Rs1.7 trillion petroleum levy collection target with the IMF, which would require keeping levy rates at Rs80 per litre throughout the fiscal year despite higher fuel prices.
Federal development spending stood at Rs918 billion, Rs82 billion less than the originally approved budget but Rs100 billion more than the downward revised budget.
The Ministry of Finance also said that due to tight fiscal discipline, cash management and early retirement of Rs1.9 trillion in domestic debts, the government saved Rs1.967 trillion in servicing domestic debt. Against the budgeted Rs8.2 trillion, debt servicing remained at Rs6.95 trillion in the last fiscal year.
Statistical discrepancy
There was also a statistical discrepancy of Rs853 billion in the five budgets, which the finance ministry said was due to changes in cash balances. The discrepancy was negative, suggesting cash inflows exceeded outflows.
The fiscal report explained that the federal government’s statistical discrepancy was recorded at Rs448 billion, primarily due to an increase in commercial bank deposits and variations in reporting and book adjustments among the State Bank of Pakistan (SBP), FBR and Economic Affairs Division (EAD) data.
The combined statistical discrepancy of provincial governments was recorded at Rs405 billion: Punjab was recorded at Rs266 billion, K-P recorded Rs95 billion, Balochistan is at Rs72 billion and Sindh recorded Rs28 billion. The finance ministry said the main reason was movement in commercial bank deposits.
