ISLAMABAD: Pakistan has recorded its lowest fiscal deficit in decades, achieving a fiscal deficit of 2.61% of GDP or Rs3.3 trillion for the fiscal year 2026, a significant decrease from the previous year's 5.4% of GDP or Rs6.2 trillion. This represents a marked improvement over the anticipated figure of 3% of GDP for FY26.

According to JS Global, the improved fiscal performance is largely attributed to a 4% reduction in total expenditures, driven by a 22% decrease in interest expenses. This was achieved despite a 9% year-on-year increase in domestic debt, thanks to lower realized interest rates and more effective debt management by the finance ministry's debt division. The average yield on Treasury bills during FY26 was 11.03%, compared to 13.63% in FY25.

While overall expenditures, excluding interest expenses, rose by 5.6% year-on-year in FY26, this was outpaced by a 10% growth in total revenue. The primary surplus for the year was Rs3.6 trillion, or 2.9% of GDP, surpassing the International Monetary Fund's target of 2.5% of GDP.

In the fourth quarter, Pakistan posted a fiscal deficit of 1.9% of GDP, down from 2.8% in the same period the previous year. The primary deficit for this period was 0.4% of GDP, compared to 0.7% in the fourth quarter of FY25. Interest expenses during the fourth quarter of FY26 amounted to Rs2.0 trillion, an 18% year-on-year decrease, despite an increase in domestic debt.

Subsidies and grants expenses fell by 29% year-on-year to Rs1 trillion in FY26. The fiscal deficit of Rs3.3 trillion was financed through a mix of domestic and external sources, with Rs2.2 trillion provided by banks, while non-bank financing saw a retirement of Rs99 billion. Privatization proceeds of Rs4 billion were also recorded, and external financing increased by Rs1.2 trillion.

Looking ahead, the fiscal deficit for FY27 is projected to be 3.6% of GDP, with a primary surplus of 2.0%.