Pakistan recorded its lowest fiscal deficit in at least 27 years during the first nine months of the current fiscal year, supported by large provincial surpluses, strong petroleum levy collections, and a sharp decline in interest payments.

Data released by the Ministry of Finance showed the fiscal deficit stood at Rs. 856 billion during July-March FY26, down from Rs. 2.97 trillion in the same period last year, marking an improvement of 71 percent.

The fiscal year began with a surplus of Rs. 2.1 trillion, which narrowed to Rs. 542 billion by the middle of the year before turning into a deficit by the end of the third quarter.

Provincial governments posted a combined cash surplus of Rs. 1.636 trillion during the nine-month period, exceeding the full-year target of Rs. 1.464 trillion. Punjab contributed the largest surplus at Rs. 824 billion, followed by Sindh with Rs. 441 billion, Khyber Pakhtunkhwa with Rs. 253 billion, and Balochistan with Rs. 118 billion.

The petroleum development levy emerged as the government’s single largest revenue source, increasing 45 percent to Rs. 1.205 trillion compared with less than Rs. 835 billion in the same period last year. Profit transfers from the State Bank of Pakistan also remained a major support to the fiscal position.

Interest payments declined sharply by nearly Rs. 1.5 trillion to Rs. 4.948 trillion, compared with Rs. 6.44 trillion a year earlier. As a result, the primary surplus rose to Rs. 4.1 trillion, equivalent to 3.2 percent of GDP.

Despite the improved fiscal picture, overall revenue indicators weakened slightly. The revenue-to-GDP ratio fell to 11.4 percent from 11.7 percent a year earlier. Tax revenues declined to 7.8 percent of GDP, while non-tax revenues slipped to 3.6 percent.

Among key tax heads, direct taxes remained unchanged at 3.6 percent of GDP, while sales tax collections fell to 2.4 percent and customs duty dropped to 0.7 percent.

Total expenditure declined to 12.1 percent of GDP from 14.2 percent in the same period last year, largely because of lower debt servicing costs.

At the same time, defence spending increased to Rs. 1.69 trillion from Rs. 1.423 trillion a year earlier, while subsidies rose to Rs. 632 billion from Rs. 466 billion.

The Federal Board of Revenue reported tax collections of Rs. 9.306 trillion during July-March, while provincial tax revenues grew 26 percent to Rs. 861 billion.