Pakistan Fiscal Surplus Narrows to 0.8% of GDP
The Pakistan fiscal surplus narrowed to 0.8 per cent of gross domestic product in the first quarter of the current fiscal year, the Ministry of Finance said in its Monthly Economic Update and Outlook report issued on Thursday, 29 October 2026. The surplus stood at Rs1.198 trillion for July to September, down from 1.7 per cent of GDP, or Rs2.124 trillion, in the same quarter of the last fiscal year.
The primary surplus, which excludes interest payments, also fell, to 1.6 per cent of GDP, or Rs2.3 trillion, from 2.3 per cent of GDP, or Rs2.94 trillion, a year earlier. The ministry said the position weakened even though revenue beat its target and subsidies were cut sharply, because interest payments and development spending both rose fast.
Pakistan fiscal surplus: what changed in three months
Total spending rose by 20.7 per cent during the quarter. Development spending drove the increase, jumping by 69.5 per cent, while current spending grew by 14.7 per cent. Non-interest spending fell by 8.1 per cent, mainly because subsidies were cut by 90 per cent, while mark-up payments increased by 36.6 per cent.
On the revenue side, the picture was stronger. Net federal revenue reached Rs2.9123 trillion, above federal spending of Rs2.124 trillion, leaving a federal surplus equal to 0.5 per cent of GDP. The Federal Board of Revenue collected Rs3.086 trillion in the quarter, up 7 per cent and Rs33.2 billion above target. Direct taxes grew by 5.5 per cent and indirect taxes by 8.3 per cent, with sales tax up 11.6 per cent, federal excise duty up 3.6 per cent and customs duties up 0.5 per cent.
The ministry said the government would keep fiscal policy focused on stability through stronger revenue collection and careful spending. It flagged geopolitical tensions, trade disruptions, high commodity prices and uncertainty around technology investment as the main downside risks.
External account and reserves
The current account deficit widened to $874 million in the first quarter, almost 16 per cent higher than the $755 million recorded in the same period last year. The ministry still pointed to stronger financing inflows. Portfolio investment recorded net inflows of $2.9 billion, compared with net outflows of $633.3 million a year earlier. Foreign direct investment rose by about 20 per cent to $720 million.
Together, those flows helped deliver an overall balance of payments surplus of $3.1 billion, against a deficit of $274 million a year earlier. The ministry described the $3 billion Eurobond issue in September as the quarter’s key development for foreign inflows. By 16 October, the State Bank’s liquid reserves stood at $21.5 billion and total liquid reserves at $26.8 billion.
That position matches Feature Pakistan’s report that SBP reserves rose to $21.52 billion in the week ended 23 October. The ministry said stronger reserves improve Pakistan’s capacity to meet external obligations despite swings in global energy prices.
Why the interest bill matters for households
The report also backed the State Bank’s decision earlier in the week to raise the policy rate by 50 basis points to 12 per cent, even though higher rates add to the interest burden. The ministry said the move aimed to anchor inflation expectations and keep inflation within its target range.
For households, the tension is plain. A higher policy rate helps fight inflation, but it also raises the government’s own borrowing costs, which is one reason the surplus narrowed despite the subsidy cuts. The ministry projected headline inflation of 9.5 per cent to 10.5 per cent for October 2026.
The ministry expressed cautious optimism about recovery, pointing to better crop prospects, selected manufacturing industries, domestic construction activity and expanding external earnings. It said steady demand in the United States, the United Kingdom and OECD markets should support exports.
Readers tracking the revenue side can also follow the FBR steel tax rules reported this week, the PSX fourth-session gain and the SBP SMEConnect loans portal.
Frequently asked questions
What was Pakistan’s fiscal surplus in the first quarter of FY27?
It was 0.8 per cent of GDP, or Rs1.198 trillion, down from 1.7 per cent of GDP, or Rs2.124 trillion, a year earlier.
Why did the surplus narrow despite higher revenue?
Interest payments rose by 36.6 per cent and development spending jumped by 69.5 per cent, outweighing a 90 per cent cut in subsidies.
