Pakistan Turns Budget Deficit Into Rs. 2.1 Trillion Surplus

Pakistan Turns Budget Deficit Into Rs. 2.1 Trillion Surplus

Here’s a detailed breakdown of how Pakistan’s government transformed what had been a recurring budget deficit into a surprising budget surplus in the first quarter of fiscal year 2025-26.

Key Figures & Facts

• For the quarter ended September 2025 (Q1 FY26), Pakistan recorded a budget surplus of approximately Rs. 2.12 trillion, equal to about 1.6% of GDP. Profit by Pakistan Today+3Business Recorder+3The Express Tribune+3

• The primary surplus (i.e., excluding interest payments) stood at around 2.7% of GDP. Profit by Pakistan Today+2Business Recorder+2

• Total revenue during this period was about Rs. 6.2 trillion (≈4.8% of GDP) while total expenditure reached about Rs. 4.1 trillion (≈3.1% of GDP). Business Recorder+1

• A major contributor was the State Bank of Pakistan (SBP), whose record profit transfer of around Rs. 2.4 trillion significantly strengthened the government’s fiscal position. ProPakistani+2Profit by Pakistan Today+2

• Provincial governments collectively also posted a surplus: about Rs. 781 billion across provinces. Business Recorder+1

What Drove the Turnaround

1. One-time contributions from the SBP: The unprecedented profit transfer by the State Bank played a huge role — without which the underlying surplus would shrink significantly. ProPakistani+1

2. Higher non-tax/levy income: For example, petroleum levies rose ~30 % year-on-year. Profit by Pakistan Today+1

3. Improved provincial finances: Provinces like Punjab and Sindh posted strong surpluses, which helped the national numbers. Dawn+1

4. Moderate expenditure growth: While spending did rise, it did not overwhelm the revenue gains in this quarter. SAMAA TV+1

But … There Are Caveats

• If you exclude the SBP’s exceptional profit, the picture changes: the adjusted figures show a small deficit of ~0.2% of GDP and a primary surplus of only ~0.8% of GDP. ProPakistani

• The government’s revenue growth remains modest, and tax to GDP ratio is still low. Profit by Pakistan Today+1

• The surplus is for one quarter only; full-year prospects remain uncertain. Analysts expect the year-end budget deficit to reach about 4.6% of GDP, above the government’s target of ~3.9 %. ProPakistani+1

Why It Matters

• A budget surplus (even if partly driven by one-off items) signals improved fiscal discipline and gives the government more room to manoeuvre.

• It helps in debt servicing and may reduce borrowing needs, which is important for Pakistan given its high debt levels.

• It can improve investor confidence, support ratings agencies’ views, and potentially help in negotiations with international lenders.

• However, reliance on exceptional items means underlying structural reforms (tax base expansion, expenditure control) still matter a lot.

Outlook & What to Watch

• Can the government maintain or repeat this surplus in subsequent quarters without depending on large one-off transfers?

• Will tax revenue grow sustainably (i.e., improve the tax-to-GDP ratio)?

• Can the government keep expenditure growth in check, especially interest payments and debt servicing costs?

• How will external factors (e.g., global commodity prices, exchange rate pressures, flood relief needs) affect fiscal balance?

• Monitoring full-year outcome: whether the deficit remains within target (~3.9 % of GDP) or worsens beyond 4%+.

Conclusion

Pakistan’s shift from a budget deficit to a Rs. 2.1 trillion surplus in Q1 is a noteworthy achievement — but it comes with important qualifiers. Much of the gain stems from one-off profits at the central bank and elevated non-tax levies, rather than a transformational improvement in revenue structure. To convert this short-term gain into long-term stability, the government will need sustained tax reforms, controlled spending, and disciplined fiscal management.