Pakistan’s fiscal deficit narrowed to 2.4% of GDP during the first nine months of fiscal year 2025 (9MFY25), compared to 3.7% of GDP in the same period last year, driven by significant growth in both tax and non-tax revenues, official data revealed on May 7, 2025.
In the third quarter of FY25 (3QFY25), the fiscal deficit stood at 1.2% of GDP (Rs 1.4 trillion), down from 2.8% in the previous quarter and 1.4% in 3QFY24. The improvement is attributed to a 26% year-on-year increase in tax revenues and a remarkable 68% rise in non-tax revenues during the nine-month period.
The primary account showed a marginal deficit of 0.1% of GDP in 3QFY25, but the primary surplus for 9MFY25 remained robust at 2.8%, significantly higher than the 1.5% surplus recorded in 9MFY24. This surge is largely due to a record profit of Rs 2.5 trillion (2% of GDP) posted by the State Bank of Pakistan, compared to Rs 0.97 trillion (0.9% of GDP) in the previous year.
Tax revenues reached Rs 3.0 trillion in 3QFY25, primarily driven by a 26% growth in Federal Board of Revenue (FBR) collections. However, despite this growth, tax revenues fell short of International Monetary Fund (IMF) targets, partly due to lower-than-expected autonomous growth amid subdued inflation.
Interest expenses remained steady at Rs 1.3 trillion in 3QFY25, unchanged from the previous year but down 66% quarter-on-quarter, reflecting higher maturities and interest payments in the second and fourth quarters. Although average yields on six-month Treasury bills fell by 933 basis points year-on-year, the benefit was partially offset by a 17% increase in government domestic borrowing since March 2024.
The combined FBR tax and Petroleum Development Levy (PDL) to GDP ratio rose to 2.5% in 3QFY25 from 2.3% in 3QFY24. Meanwhile, Public Sector Development Program (PSDP) spending increased to 0.6% of GDP from 0.5% in the same period last year.
Pension expenditures rose 8% year-on-year to Rs 223 billion, while defense spending increased 11% to Rs 534 billion. Transfers to provinces remained steady at 56.8% of tax revenues.
Despite the improvements, analysts maintain the full-year budget deficit forecast for FY25 at 5.5% of GDP, with a primary surplus target of 2.0%, based on a revised GDP estimate of Rs 115 trillion.
