Islamabad: Pakistan's fiscal landscape has shown significant improvement as the country recorded a primary budget surplus of 0.9% of GDP in FY24, the first in 20 years, despite a fourth-quarter deficit of 0.6%. The annual fiscal deficit for FY24 improved by 91 basis points year-over-year and was 60 basis points lower than revised estimates, closing at 3.1% of GDP.

According to JS Global, the report indicates that this fiscal achievement was primarily driven by a notable increase in revenue collection, particularly from the non-tax segment, and controlled operational expenditures outside of interest payments. These elements were crucial in shifting the primary balance into surplus territory.

For FY25, the government has set ambitious revenue targets, planning to raise Rs17.8 trillion, a 44% increase from the previous year. This target is part of a broader strategy that includes the implementation of a new International Monetary Fund (IMF) program, a 37-month Extended Fund Facility (EFF) worth about US$7 billion. Despite these aggressive measures, more than Rs3 trillion remains to be secured through new initiatives or possible mid-year budget adjustments.

The IMF has also prioritized the integration of the agriculture sector into the tax system starting FY25, a move that could significantly boost tax revenues but also presents considerable challenges. This policy shift is expected to play a pivotal role in maintaining fiscal discipline and achieving a projected fiscal deficit of 5.9% of GDP, the best in seven years, alongside a record 2% primary surplus.

However, concerns remain regarding potential fiscal slippage, as the fiscal deficit will once again rely heavily on domestic banking funding, accounting for 60% of the deficit. The reliance on external funding sources continues to decrease, now expected to contribute only 8% for FY25.