ISLAMABAD: Pakistan’s fiscal deficit is projected to reach its lowest level in 21 years by the end of the 2025-26 financial year, while the country’s trade deficit shrank by 39% in May 2026, signaling improved fiscal and external sector indicators ahead of the upcoming federal budget.

According to estimates by Topline Securities, Pakistan is likely to post a fiscal deficit, or budget deficit, of 3.6% of its GDP in the financial year, the lowest level in more than two decades.

The brokerage house attributed the improvement to the government’s restrictive fiscal policy under the International Monetary Fund program, which has helped contain expenditure growth while supporting stronger tax and non-tax revenue collection.

It noted that the IMF expects the fiscal year 2026-27 budget deficit to be even lower at 3.2% of GDP.

The projected decline marks a significant turnaround from the large fiscal imbalances that have weighed on the economy in recent years and is being viewed as a key sign of macroeconomic stabilization.

Experts believe that controlled government spending helped reduce the deficit, and tax and non-tax inflows supported fiscal consolidation.

In addition, transfers of Rs2.4 trillion from the State Bank of Pakistan's profits helped boost federal finances and achieve the projected fiscal deficit target.

According to the Ministry of Finance, the country’s fiscal deficit narrowed by 0.7% points of GDP during the first nine months ending March 31, 2026. The primary surplus, which excludes interest payments on debt, stood at 3.2% of GDP during this period.

The ministry's fiscal report showed that higher central bank profits, a 45% increase in Petroleum Development Levy collections of ₨1.2 trillion in the first nine months of the financial year 2026, and lower debt-servicing costs contributed to the government's fiscal performance.

The report showed that savings of ₨1.495 trillion in domestic debt servicing were achieved compared with the corresponding period of FY25 due to cash management measures and the early retirement of ₨1.9 trillion in domestic debt.

Reduced trade deficit

Pakistan’s trade deficit narrowed by 39% month-on-month in May, driven by a 10% increase in exports and a 22% decline in imports.

Commenting on the latest trade figures, Prime Minister’s Coordinator on Economy Khurram Schehzad described the development as “a massive 39% reduction in trade deficit,” noting that rising exports and falling imports had significantly reduced the trade gap.

“The national economy is moving toward sustainability and stability,” he said in a statement on Thursday.

Businessman and investor Adeel Afzal said that exports in May 2026 increased by 1.3% year-on-year and 9.6% month-on-month to $2.71 billion, while imports declined by 6.6% year-on-year and 21.5% month-on-month to $5.29 billion.

"As a result, the monthly trade deficit narrowed sharply by 39.4% to $2.58 billion from $4.26 billion a year earlier," said the businessman in a post on X.

Economist Yousuf Nazar, in a post on X, noted that strong remittance inflows are expected to offset much of the gap.

The latest figures suggest Pakistan’s economy is gaining stability, though analysts say sustaining the progress will require continued fiscal discipline, export growth, and structural reforms.

Articles tagged with "Deficit"

Pakistan’s fiscal deficit set for 21-year low as trade deficit shrinks 39% in May