Pakistan Records First Half-Year Fiscal Surplus

Pakistan achieved its first-ever half-yearly fiscal surplus during the first six months of FY26, recording a surplus of Rs542 billion, equivalent to 0.4% of GDP. This marks a significant turnaround from a fiscal deficit of Rs1.5 trillion, or 1.3% of GDP, reported during the corresponding period of the previous fiscal year.

Data released by Topline Pakistan Research indicates that the fiscal improvement was driven by a 10% reduction in total expenditures during July–December FY26, alongside a 9% increase in overall revenues. A major contributing factor was a substantial decline in interest expenses, which fell by 31% year-on-year, primarily due to a 33% reduction in domestic debt servicing costs, notwithstanding a 1.6% increase in external debt expenses.

The primary balance also showed marked improvement, with Pakistan posting a primary surplus of Rs4.1 trillion, representing 3.2% of GDP, compared to Rs3.6 trillion, or 3.1% of GDP, in the same period last year. This outcome exceeded the 2.6% of GDP primary surplus target stipulated under the IMF programme for FY26.

During the second quarter of FY26, the fiscal deficit narrowed significantly to 1.2% of GDP, down from 3.0% in the corresponding quarter of the previous year. The primary surplus for the quarter improved to 0.5% of GDP, compared to 0.3% a year earlier.

Interest expenses in the second quarter amounted to Rs2.2 trillion, reflecting a 43% year-on-year decline amid reduced policy rates. However, interest costs rose by 59% on a quarter-on-quarter basis due to seasonal debt maturities typically falling in December and June.

Subsidies and grants increased substantially during the period, rising by 42% year-on-year and 91% quarter-on-quarter to Rs838 billion, largely attributable to expenditures on flood relief and emergency response operations.

Notwithstanding the fiscal surplus, the government retired Rs575 billion in domestic debt during the first half of FY26, while net external borrowing amounted to Rs34 billion over the same period.