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Pakistan posted an unexpected fiscal surplus of Rs 542 billion, equal to 0.4% of GDP, in the first half of fiscal year 2026, marking a sharp turnaround from the Rs 1.5 trillion deficit recorded in the same period last year. The improvement reflects lower spending and stronger revenues, according to research by Topline Securities.
The country’s primary surplus widened to Rs 4.1 trillion, or 3.2% of GDP, comfortably exceeding the IMF’s full-year FY26 target of 2.6% of GDP. Analysts attributed the improvement to a 10% decline in total expenditures, combined with around 9% growth in revenues during the July–December period.
A major factor behind the fiscal turnaround was a significant reduction in interest expenses. Local debt servicing costs dropped 33%, leading to an overall 31% year-on-year decline in markup payments. Interest costs in the second quarter stood at Rs 2.2 trillion, down 43% from last year, though a quarter-on-quarter increase reflected seasonal repayment cycles.
Subsidies Rise Despite Spending Cuts
Despite overall expenditure restraint, subsidies and grants increased sharply, rising 42% year-on-year to Rs 838 billion. Topline noted that the increase was largely driven by flood relief and rescue operations, highlighting ongoing fiscal pressures from emergency spending.
Debt Retirement and Revenue Growth
Taking advantage of the surplus, the government retired Rs 575 billion in domestic debt during 1HFY26, while external borrowing remained limited at Rs 34 billion. Analysts say this could ease short-term financing risks. Total revenue collections reached Rs 10.7 trillion, supported by strong tax inflows, though experts cautioned that sustaining these gains throughout the year may be challenging due to seasonal pressures.
