Pakistan’s fiscal position showed marked improvement in the first nine months of fiscal year 2025 (9MFY25), with the budget deficit narrowing to 2.4% of GDP, compared to 3.7% during the same period last year. This progress is driven by a substantial increase in both tax and non-tax revenues, according to official data released on May 7, 2025.
During the third quarter of FY25 (3QFY25), the fiscal deficit dropped to 1.2% of GDP, amounting to Rs 1.4 trillion. This represents a significant decline from 2.8% in the previous quarter and 1.4% in the same quarter last year. A 26% year-on-year rise in tax revenues and a 68% increase in non-tax revenues contributed to this fiscal improvement.
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The primary balance remained positive over the nine-month period, registering a surplus of 2.8% of GDP—an increase from 1.5% in 9MFY24. Although 3QFY25 saw a marginal primary deficit of 0.1%, the overall surplus reflects stronger fiscal discipline, bolstered by the State Bank of Pakistan’s record profit of Rs 2.5 trillion, accounting for 2% of GDP. This compares favorably to Rs 0.97 trillion (0.9% of GDP) in the same period last year.
Tax revenues in the third quarter reached Rs 3.0 trillion, supported by a 26% growth in collections by the Federal Board of Revenue (FBR). However, despite this increase, the collections fell short of the targets set under the International Monetary Fund (IMF) program, primarily due to weaker-than-anticipated autonomous growth amid low inflation.
Interest payments in 3QFY25 totaled Rs 1.3 trillion, unchanged from the same period last year but significantly lower than in the previous quarter. This decline is attributed to higher maturities and scheduled interest disbursements concentrated in the second and fourth quarters. Although yields on six-month Treasury bills declined by 933 basis points year-on-year, the benefit was somewhat negated by a 17% rise in domestic borrowing since March 2024.
The ratio of FBR tax and Petroleum Development Levy (PDL) to GDP increased to 2.5% in 3QFY25 from 2.3% in 3QFY24. Public Sector Development Program (PSDP) spending rose to 0.6% of GDP during the quarter, up from 0.5% in the same period last year.
Expenditure pressures continued, with pension spending increasing 8% year-on-year to Rs 223 billion and defense spending climbing 11% to Rs 534 billion. Transfers to provinces remained consistent, comprising 56.8% of total tax revenues.
Despite the notable fiscal consolidation, Topline Securities has maintained its full-year budget deficit projection for FY25 at 5.5% of GDP, with a primary surplus forecast of 2.0%. These estimates are based on a revised nominal GDP figure of Rs 115 trillion.
