Pakistan’s Rs1.3 trillion fiscal surplus masks falling central bank profits, rising interest payments and mounting pressure on government finances.
KARACHI, Nov. 13 (Focus Pakistan) — Pakistan fiscal surplus shrank nearly 38% to Rs1.3 trillion in the July-September quarter, as a smaller transfer of central bank profit and a jump in interest costs ate into the government’s books, official fiscal data showed.
In terms of gross domestic product, the surplus came to 0.9%, against 1.7%, or Rs2.1 trillion, a year earlier. The figures cover the three months to September 30, the first quarter of the 2026-27 fiscal year, which runs from July to June.
The primary balance, which leaves out interest payments, showed a surplus of 2.1% of GDP, or Rs3.0 trillion, against 2.8%, or Rs3.5 trillion, in the first quarter of FY26. That is slightly above the 2.0% target agreed with the International Monetary Fund for the whole of FY27. The Fund’s target applies to the full year, not to a single quarter. Pakistan has run primary surpluses under its IMF programmes in recent years.
The State Bank of Pakistan transfers its profit to the government in the first quarter, which usually flatters the July-September numbers. This year that transfer fell 20% to Rs1.9 trillion. The Rs475 billion reduction in central bank profits accounted for nearly 60% of the Rs800 billion decline in the fiscal surplus.
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Interest payments jumped 23% to Rs1.7 trillion, according to the data, following the State Bank’s 100-basis-point policy rate increase at the end of April 2026. Total expenditure grew 16% from the first quarter of FY26.
The increase took the policy rate to 11.5%, the central bank’s first hike in almost three years, as the war in the Middle East pushed up energy costs. The SBP had spent the previous two years cutting rates from a record 22%.
Treasury bill yields, which set the cost of much of the government’s short-term borrowing, averaged 11.6% in July-September compared with 10.8% a year earlier. Domestic debt increased 9% year-on-year in August.
Against April-June, interest payments were 15% lower, which says more about when debt-servicing payments fell due than about the overall burden.
Spending other than interest rose 12% from a year earlier.
The Federal Board of Revenue collected Rs3.1 trillion in the quarter, 7% more than a year before, taking total tax revenue to Rs3.4 trillion, which was also up 7%.
Among other heads, the Public Sector Development Programme drew Rs468 billion, up 59% on the year, defence took Rs495 billion, up 11%, and subsidies and grants shrank 17% to Rs366 billion. The cut in subsidies and grants amounts to roughly Rs75 billion. Development spending recorded the largest percentage increase among the reported expenditure categories.
With the Rs1.3 trillion surplus, Rs609 billion of net external financing and Rs592 billion from non-bank sources, the government paid down Rs2.5 trillion of bank borrowing.
No privatisation proceeds came in during the quarter, after Rs4 billion in April-June. The government has counted on privatisation receipts to help finance its budget.
Gross external inflows totalled Rs1.25 trillion, including Rs910 billion in programme loans, against repayments of Rs638 billion. That left net external financing of Rs609 billion for the quarter. Programme loans made up nearly three-quarters of the gross inflows.
A brokerage forecast puts Pakistan’s FY27 fiscal deficit at 3.6% of GDP and its primary surplus at 2.0%, in line with the IMF target.
