Pakistan Posts 9-Year Low Budget Deficit in FY25

Pakistan recorded a 9-year low fiscal deficit of 5.38 percent in FY25, thanks to 36 percent YoY growth in both tax and non-tax revenues combined vs. 18 percent growth in total expenditures. According to Topline Securities, the deficit of 5.38 percent is better than the government’s revised forecast of 5.6 percent of GDP (earlier budgeted 5.9%) for FY25. Similarly, the IMF also projected a deficit of 5.6 percent of GDP. Overall revenues have grown 36 percent YoY amidst a 66 percent increase in non-tax revenues led by a robust dividend of Rs. 2.62 trillion (vs. Rs. 0.97 trillion in FY24) from SBP amidst higher interest rates and an expanded balance sheet. While tax revenues have grown 26 percent YoY, led by 26 percent growth in FBR revenues. In the last 5 years, FBR revenues (including PDL) have increased 3.02x from Rs. 4.3 trillion in FY20 to Rs. 12.9 trillion in FY25. While the size of GDP duthe ring same period has increased 2.75x from Rs. 41 trillion to Rs. 114.6 trillion. FBR tax (with PDL) to GDP ratio has increased to 11.3 percent in FY25, a 7-year high compared to 9.7 percent in FY24 and an average of 9.9 percent in last five years (FY20 to FY24). Pakistan has recorded a primary balance of 2.4 percent of GDP, the highest surplus % in the recent past (over 2 decades). Higher primary surplus is achieved as revenue growth surpasses expenditure growth. This surplus of 2.4 percent of GDP is better than the government’s revised projection of 2.2 percent of GDP and the IMF forecast of 2.1 percent. Interest expenses as % of FBR taxes have declined to 76 percent compared to 88 percent in FY24. The improvement in debt servicing is on the back of controlled growth of 9 percent in interest expenses, on the back of lower interest rates. PSDP as percent of GDP has increased to 2.6 percent of GDP compared to 1.9 percent in FY24, while still lower than the historic high of 5 percent of GDP achieved in FY17. Pakistan is expected to post 3rd consecutive year of primary surplus in FY26 after 2 decades. While overall fiscal deficit is expected to clock in at 4.0-4.1 percent of GDP in FY26, the lowest in 2 decades.