Provinces return Rs1.18 trillion cash surplus to Centre in first half under IMF targets

Pakistan’s four provinces transferred a combined Rs1.18 trillion in cash surplus to the federal government during July–December 2025, coming close to the full-year target set under the International Monetary Fund (IMF) programme, even as the country’s revenue-to-GDP ratio declined.

Fiscal operations data released by the Ministry of Finance show the provinces fell short by Rs285 billion of the Rs1.464 trillion annual surplus target agreed under the $7 billion Extended Fund Facility. In the same period last year, provincial surpluses totalled Rs775 billion against a budgeted Rs1.2 trillion.

Punjab contributed the largest share with a Rs609 billion surplus in six months, followed by Sindh’s Rs354 billion. Khyber Pakhtunkhwa provided Rs175 billion, while Balochistan transferred Rs41 billion to the Centre.

The provincial transfers helped the federal government post a consolidated fiscal surplus of Rs542 billion in the first half of the year, compared with a deficit of Rs1.5 trillion in the corresponding period last year. In GDP terms, the fiscal balance improved to a surplus of 0.4%, from a deficit of 1.3% a year earlier.

Despite this improvement, the primary balance stood at 3.2% of GDP, marginally higher than 3.1% last year, indicating limited change in expenditure patterns.

On a year-on-year basis, Punjab’s surplus rose by about 83% to Rs610 billion, while Sindh’s increased 34% to Rs354 billion. Khyber Pakhtunkhwa more than doubled its surplus to Rs175 billion. Balochistan’s contribution declined to Rs41 billion from Rs92 billion in the same period last year.

Meanwhile, the revenue-to-GDP ratio fell to 8.2% in the first half of the current fiscal year from 8.5% a year earlier. The tax-to-GDP ratio slipped to 5.2% from 5.3%, while non-tax revenue declined to 3.1% of GDP from 3.2%, despite a 50% increase in petroleum development levy collections.

Federal revenue collection dropped to 4.8% of GDP from 4.9% last year, mainly due to lower direct taxes, which fell to 2.3% of GDP from 2.4%. General sales tax also declined to 1.6% of GDP, while customs and excise duties remained unchanged.

On the expenditure side, total spending fell to 7.8% of GDP from 9.9% last year, largely due to lower interest costs following policy rate cuts by the State Bank of Pakistan. Current expenditure declined to 7.4% of GDP from 8.8%.

The finance ministry reported that the Federal Board of Revenue collected Rs6.161 trillion in the first half, up Rs536 billion year-on-year, reflecting 10% growth. Non-tax revenue stood at Rs3.799 trillion, including Rs2.428 trillion in profits from the central bank, while petroleum levy collections reached Rs823 billion.

Provincial tax revenues increased 28% to Rs569 billion, while provincial non-tax revenue rose 8% to Rs155 billion.