Pakistan has recorded a fiscal surplus for the third consecutive first quarter, extending a streak of budget surpluses after 23 years of deficits. However, the latest figures show that the surplus has dropped 40 percent year-on-year, while government spending has increased significantly.

According to the government’s fiscal operations data for July to September 2026, the fiscal surplus stood at Rs. 1.274 trillion, equivalent to 0.9 percent of GDP. This compares with Rs. 2.119 trillion, or 1.7 percent of GDP, in the corresponding period last year.

The decline amounts to Rs. 845 billion, reflecting a weaker fiscal position despite the continuation of the surplus.

In a statement on Friday, Finance Minister’s adviser Khurram Shehzad highlighted that Pakistan had recorded surpluses in the first quarters of FY25, FY26 and FY27, following 23 consecutive years of deficits from FY02 to FY24.

The primary surplus also fell 15 percent to Rs. 2.974 trillion from Rs. 3.497 trillion a year earlier. It represented 2.1 percent of GDP but remained Rs. 239 billion, or 8.7 percent, above the government’s FY27 budget target.

Government Revenue Declines as Spending Increases

The latest figures show that government expenditure grew faster than revenue during the quarter.

Total revenue fell 3 percent to Rs. 6.004 trillion from Rs. 6.2 trillion in the same period last year. Meanwhile, expenditure increased 16 percent to Rs. 4.73 trillion from Rs. 4.08 trillion.

Tax revenue provided some support, rising 7 percent to Rs. 3.387 trillion from Rs. 3.153 trillion. Federal Board of Revenue collections increased to Rs. 3.086 trillion from Rs. 2.884 trillion.

However, non-tax revenue declined 14 percent to Rs. 2.617 trillion from Rs. 3.046 trillion, offsetting much of the improvement in tax collections. Receipts from the petroleum development levy and carbon levy increased 6 percent to Rs. 404 billion from Rs. 382 billion.

Overall, the government collected Rs. 196 billion less revenue while spending an additional Rs. 650 billion compared with the previous year.

Debt Servicing and Development Spending Rise

Higher interest payments, defence spending and development expenditure contributed to the increase in government spending.

Markup payments on government debt rose 23 percent to Rs. 1.7 trillion from Rs. 1.378 trillion. Defence expenditure increased 11 percent to Rs. 495 billion from Rs. 447 billion, while spending under the Public Sector Development Programme (PSDP) jumped 59 percent to Rs. 468 billion from Rs. 295 billion.

Pension payments also increased 6 percent to Rs. 264 billion from Rs. 249 billion.

In contrast, subsidies and grants declined 17 percent to Rs. 366 billion from Rs. 439 billion.

Interest payments alone consumed approximately 57 percent of the primary surplus during the quarter. After deducting Rs. 1.7 trillion in markup expenses from the Rs. 2.974 trillion primary surplus, the government was left with a fiscal surplus of Rs. 1.274 trillion.

Government Highlights Three-Year Surplus Record

The government has also highlighted the improvement in Pakistan’s broader fiscal indicators over the past three years.

First-quarter fiscal surpluses stood at Rs. 1.896 trillion in FY25, Rs. 2.119 trillion in FY26 and Rs. 1.274 trillion in FY27.

Primary surpluses during the same periods reached Rs. 3.202 trillion, Rs. 3.497 trillion and Rs. 2.974 trillion, respectively. The government described these as the three highest first-quarter primary surpluses recorded in the 26-year period covered by its data.

For FY26, the annual fiscal deficit narrowed to 2.6 percent of GDP, its lowest level in 22 years. The primary surplus reached 2.9 percent of GDP, the highest since at least FY01, while interest expenditure declined 22 percent.

Pakistan also maintained primary surpluses for three consecutive financial years from FY24 to FY26.

The Finance Ministry said the fiscal performance reflected continued financial discipline despite tax relief measures introduced in the FY27 budget. It added that fiscal reforms, sustained surpluses and better debt management would help strengthen the country’s financial position and support long-term economic growth.