Pakistan's FY2025-26 Fiscal Deficit, and What Sits Beneath the Number

Overview

Pakistan's fiscal deficit for FY2025-26 closed at 2.6 percent of GDP, the lowest in 22 years, alongside a record primary surplus and a sovereign credit rating upgrade from S&P Global Ratings. This commentary looks past the headline figure at what actually made up the improvement, and finds it resting substantially on a State Bank profit transfer, the petroleum levy, and falling interest payments, three items sensitive to conditions outside tax policy, while the Federal Board of Revenue missed its own collection target for the year despite two downward revisions.

It argues the distinction matters for FY2026-27: a deficit reduction anchored in a broadening, durable tax base carries different implications for planning than one anchored in non-tax windfalls and cheaper debt servicing, and sets out three data points, the FBR's next target, whether SBP and petroleum-levy revenue repeat at scale, and the tax-to-GDP ratio, that will show which kind of improvement this was.