Islamabad, May 7, 2025 — Pakistan’s fiscal indicators showed notable improvement during the first nine months of the ongoing fiscal year (July–March FY2024-25), as the federal budget deficit shrank to 2.4% of GDP, down significantly from 3.7% recorded during the same period last year. The Ministry of Finance released these figures on Wednesday, attributing the fiscal improvement to a surge in both tax and non-tax revenues.
The contraction in the budget deficit was largely driven by a 26% year-on-year rise in tax revenues and an impressive 68% surge in non-tax revenues during the nine-month period. The substantial boost in non-tax revenues was primarily due to record profits from the State Bank of Pakistan, which contributed Rs2.5 trillion (2% of GDP), up from Rs0.97 trillion (0.9% of GDP) in 9MFY24.
Despite a marginal deficit of 0.1% in the primary account during the third quarter, the overall primary balance posted a healthy surplus of 2.8% of GDP for 9MFY25. This is a considerable improvement from the 1.5% primary surplus recorded in the same period last year. The strong primary surplus reflects the government’s ongoing efforts to maintain fiscal discipline amid tight financing conditions.
Federal Board of Revenue (FBR) collections rose by 26% year-on-year in 3QFY25, reaching Rs3.0 trillion. However, the performance fell short of International Monetary Fund (IMF) targets, mainly due to subdued economic activity and lower-than-expected inflation. Meanwhile, interest payments remained steady year-on-year at Rs1.3 trillion in 3QFY25, though they fell sharply by 66% on a quarter-on-quarter basis due to heavier maturities in the second quarter.
The impact of declining interest rates was partly offset by a 17% increase in domestic borrowing, which has grown by Rs7.6 trillion since March 2024. As a result, the full benefit of lower interest rates is expected to manifest in future quarters, owing to lagged repricing effects.
On the expenditure side, pension outlays rose 8% YoY to Rs223 billion, while defense spending increased by 11% to Rs534 billion. Transfers to provinces remained steady at 56.8% of total tax revenue. Public Sector Development Programme (PSDP) expenditures slightly increased to 0.6% of GDP from 0.5% last year.
Looking ahead, the government maintains its fiscal target for FY25, projecting a budget deficit of 5.5% of GDP and a primary surplus of 2.0%, based on a revised GDP estimate of Rs115 trillion. The continued narrowing of the budget deficit and improving revenue performance suggest cautious optimism for fiscal consolidation efforts in the coming months.