Pakistan Records Lowest Budget Deficit in History

Pakistan documented the lowest fiscal deficit in over two decades during the fiscal year 2026 (FY26), reporting a deficit of Rs. 3.3 trillion, or 2.6 percent of the country's GDP. This marked a significant decline from the previous year, where the deficit stood at 5.4 percent of GDP, or Rs. 6.2 trillion. The record-low deficit represents the lowest level seen in Pakistan's fiscal history, according to Arif Habib Limited, and the lowest percentage of GDP ever recorded.

The primary driver behind this remarkable improvement was a confluence of factors, including a reduction in government expenditure, particularly interest payments, coupled with a surge in revenue generation. Notably, total government spending dropped by approximately 4 percent year-on-year in FY26, while interest expenses plummeted by an impressive 22 percent. This decline was attributed to lower interest rates and a more efficient debt management strategy, which lessened the government's financial obligations.

During FY26, the average yield on Treasury bills stood at around 11.03 percent, a substantial decrease from 13.63 percent in FY25. Excluding interest payments, government expenditure saw a rise of about 5.6 percent, despite total revenues growing by roughly 10 percent. Moreover, Pakistan managed to generate a primary surplus of Rs. 3.6 trillion, or 2.9 percent of GDP, which was higher than the International Monetary Fund's (IMF) target of 2.5 percent of GDP for FY26.