Record tax collection, narrower fiscal deficit and strong primary surplus underscore Pakistan’s improving fiscal performance, says Finance Ministry.
ISLAMABAD: Pakistan’s tax-to-GDP ratio rose to 10.3% in FY2026 after the Federal Board of Revenue (FBR) collected a record Rs13.01 trillion in taxes, reflecting continued improvements in revenue mobilisation and tax administration, according to the Ministry of Finance’s Monthly Economic Update for July 2026.
The ministry said the FBR collected Rs13,010 billion during the fiscal year ended June 30, 2026, representing a 10.8% increase compared with the previous year. Revenue growth was driven by a 13.7% rise in direct taxes and a 7.9% increase in indirect taxes.
Among indirect taxes, sales tax collections increased by 9.0%, customs duties rose by 3.6%, while federal excise duty receipts grew by 9.6% during the fiscal year.
Fiscal deficit narrows sharply
The report highlighted a significant improvement in Pakistan’s fiscal position during the first eleven months of FY2026.
Total government expenditure declined by 9.4% to Rs12.73 trillion, primarily due to a 21.7% reduction in markup payments. Development spending also decreased by 8.9% during the period.
Consequently, the fiscal deficit narrowed to 1.6% of GDP, equivalent to Rs2.03 trillion, during July–May FY2026, compared with 3.8% of GDP, or Rs4.28 trillion, in the corresponding period of the previous fiscal year.
Meanwhile, the primary surplus improved to 3.3% of GDP, amounting to Rs4.13 trillion, compared with 3.2% of GDP, or Rs3.59 trillion, recorded a year earlier.
External sector remains stable
According to the Finance Ministry, Pakistan’s external sector remained broadly stable despite posting a modest current account deficit.
The current account recorded a deficit of $649 million in June 2026, bringing the cumulative deficit for FY2026 to just $139 million.
Exports of goods and services remained broadly unchanged at $40.9 billion, while imports increased to $76.4 billion, widening the combined trade deficit to $35.5 billion from $29.6 billion in FY2025.
The ministry noted that exports of raw cotton, petroleum products, cotton yarn and sports goods recorded notable growth during the year.
Remittances and foreign investment increase
Workers’ remittances reached a record $41.6 billion in FY2026, reflecting an annual increase of 8.6%. Saudi Arabia, the United Arab Emirates and the United Kingdom remained the three largest sources of remittance inflows.
Foreign direct investment (FDI) inflows totalled $3.6 billion during the fiscal year, while net FDI stood at $1.6 billion. China, Hong Kong and the United Arab Emirates emerged as the leading investors, with the power and financial services sectors attracting the largest share of investment.
As of July 17, 2026, Pakistan’s total foreign exchange reserves stood at $22.7 billion, including $17.3 billion held by the State Bank of Pakistan (SBP).
SBP maintains policy rate
The report noted that the State Bank of Pakistan’s Monetary Policy Committee (MPC) kept the policy rate unchanged at 11.5% during its meeting on July 27, 2026.
The central bank cited improving macroeconomic indicators and easing supply-side pressures while cautioning that renewed geopolitical tensions in the Middle East and higher global oil prices continue to pose risks to inflation and the broader economic outlook.
Inflation moderates as growth outlook improves
Headline inflation eased to 11.1% year-on-year in June 2026 from 11.7% in May, while average inflation for the full fiscal year stood at 7.1%.
Looking ahead, the Finance Ministry expects Pakistan’s economy to maintain its recovery momentum during FY2027, supported by prudent fiscal management, stronger manufacturing activity, resilient agricultural performance, improving macroeconomic fundamentals and sustained growth in workers’ remittances.
However, the ministry cautioned that geopolitical uncertainty and rising international oil prices remain the principal downside risks to inflation, fiscal stability and the external sector.