Pakistan posts first-ever half-year fiscal surplus of Rs542 billion in 1HFY26

Pakistan recorded its first-ever fiscal surplus on a half-year basis during the first half of FY26, posting a surplus of Rs542 billion, or 0.4% of GDP, compared with a deficit of Rs1.5 trillion, or 1.3% of GDP, in the same period last year.

According to the data shared by Topline Pakistan Research, the improvement came as total expenditures declined by 10% during July–December FY26, while total revenues increased by 9%. A key driver was a sharp reduction in interest expenses, which fell 31% year-on-year, largely due to a 33% decline in domestic debt servicing costs, even as expenses on external debt rose 1.6%.

The primary balance also strengthened, with Pakistan posting a primary surplus of Rs4.1 trillion, equivalent to 3.2% of GDP, compared with Rs3.6 trillion, or 3.1% of GDP, in the corresponding period last year. This exceeded the 2.6% of GDP target set under the IMF programme for FY26.

In the second quarter of FY26 alone, the fiscal deficit narrowed to 1.2% of GDP from 3.0% in the same quarter last year. The primary surplus during the quarter stood at 0.5% of GDP, up from 0.3% a year earlier.

Interest expenses in the second quarter amounted to Rs2.2 trillion, down 43% year-on-year amid lower policy rates, though they rose 59% on a quarter-on-quarter basis due to seasonal debt maturities concentrated in December and June.

Subsidies and grants increased during the period, rising 42% year-on-year and 91% quarter-on-quarter to Rs838 billion, mainly reflecting spending on flood relief and rescue operations.

Despite the overall surplus, the government retired Rs575 billion in domestic debt during the first half of FY26, while external borrowing stood at Rs34 billion over the same period.