Provinces Transfer Rs1.18 Trillion Surplus to Centre

Pakistan’s four provinces collectively transferred a cash surplus of Rs1.18 trillion to the federal government during the July–December 2025 period, approaching the full-year benchmark prescribed under the International Monetary Fund (IMF) programme, notwithstanding a decline in the country’s revenue-to-GDP ratio.

Fiscal operations data issued by the Ministry of Finance indicate that the provinces undershot the agreed annual surplus target of Rs1.464 trillion by Rs285 billion under the $7 billion Extended Fund Facility. By comparison, provincial surpluses in the corresponding period last year amounted to Rs775 billion against a budgeted target of Rs1.2 trillion.

Punjab accounted for the largest contribution, generating a surplus of Rs609 billion over the six-month period, followed by Sindh with Rs354 billion. Khyber Pakhtunkhwa transferred Rs175 billion, while Balochistan contributed Rs41 billion to the federal exchequer.

These provincial transfers enabled the federal government to record a consolidated fiscal surplus of Rs542 billion in the first half of the fiscal year, reversing a deficit of Rs1.5 trillion reported in the same period last year. In GDP terms, the fiscal position improved to a surplus of 0.4%, compared to a deficit of 1.3% a year earlier.

Despite the improved fiscal outcome, the primary balance stood at 3.2% of GDP, marginally higher than 3.1% in the previous year, reflecting limited structural change in expenditure composition.

On a year-on-year basis, Punjab’s surplus increased by approximately 83% to Rs610 billion, while Sindh recorded a 34% rise to Rs354 billion. Khyber Pakhtunkhwa more than doubled its surplus to Rs175 billion, whereas Balochistan’s contribution declined to Rs41 billion from Rs92 billion in the corresponding period last year.

Meanwhile, the revenue-to-GDP ratio declined to 8.2% in the first half of the current fiscal year from 8.5% a year earlier. The tax-to-GDP ratio eased to 5.2% from 5.3%, while non-tax revenue fell to 3.1% of GDP from 3.2%, despite a 50% increase in petroleum development levy receipts.

Federal revenue collection declined to 4.8% of GDP from 4.9% in the previous year, largely due to lower direct tax receipts, which fell to 2.3% of GDP from 2.4%. General sales tax revenues declined to 1.6% of GDP, while customs and federal excise duties remained unchanged.

On the expenditure front, total spending declined to 7.8% of GDP from 9.9% last year, primarily due to reduced interest payments following policy rate cuts by the State Bank of Pakistan. Current expenditure fell to 7.4% of GDP from 8.8%.

The Ministry of Finance reported that the Federal Board of Revenue collected Rs6.161 trillion during the first half of the fiscal year, reflecting a year-on-year increase of Rs536 billion, or 10%. Non-tax revenue totalled Rs3.799 trillion, including Rs2.428 trillion in profits transferred by the central bank, while petroleum levy collections reached Rs823 billion.

Provincial tax revenues rose by 28% to Rs569 billion, while provincial non-tax revenues increased by 8% to Rs155 billion.