Pakistan has recorded its lowest-ever fiscal deficit, with the budget gap falling to just 0.7% of GDP during the first nine months of fiscal year 2026, a development that government officials describe as a milestone in the country's efforts to restore macroeconomic stability and strengthen public finances.

Khurram Schehzad, Adviser to the finance minister, said the fiscal deficit had narrowed sharply from 2.6% of GDP during the same period a year earlier, marking the first time in Pakistan's history that the deficit has fallen below the 1% threshold.

The achievement comes alongside a primary surplus of 3.2% of GDP in the first nine months of FY2026, following an already strong surplus of 3.0% during the corresponding period of FY2025. According to the adviser, the figures reflect what he described as prudent and disciplined fiscal management at a time when many economies continue to grapple with inflationary pressures and debt-related challenges.

The latest data suggests a broader improvement in Pakistan's economic indicators. Schehzad argued that the decline in the fiscal deficit points to stronger sovereign fundamentals, improving public finances and a gradual recovery in economic activity.

A key feature of the improvement has been revenue collection. Tax-to-GDP and total revenue-to-GDP ratios have continued to rise over the past two years, while tax receipts have registered some of the strongest gains in recent years. The adviser attributed the trend to sustained reforms, stronger compliance mechanisms, digitisation initiatives and improvements in fiscal administration.

At the same time, expenditure management has remained central to the adjustment effort. According to Schehzad, overall spending has been kept under control despite global inflation and the burden of legacy debt servicing. Current expenditure has stabilised, while development spending has been maintained in an attempt to support longer-term economic expansion. He also noted that defence expenditure as a share of GDP has broadly remained contained over time, which he said reflects wider fiscal discipline across government finances.

The sustained primary surpluses are beginning to influence Pakistan's debt profile. Schehzad said public debt ratios are gradually declining, refinancing risks are easing and debt maturities are improving. These developments, he argued, are reducing fiscal vulnerabilities and laying the groundwork for greater long-term stability.

The adviser linked the fiscal adjustment to a wider strengthening of macroeconomic conditions. Fiscal consolidation, reserve accumulation, exchange-rate stability and moderating inflation have together contributed to a more favourable economic environment, he said.

Signs of improving confidence are increasingly visible in financial markets and the corporate sector. According to Schehzad, Pakistan has successfully returned to international capital markets, while manufacturing activity, corporate profitability, foreign inflows and initial public offering activity have all strengthened. He added that multilateral institutions, credit-rating agencies and international investors are increasingly recognising improvements in Pakistan's fiscal and external-sector fundamentals.

While the government portrays the latest figures as evidence of a turning point, the broader significance lies in the fact that Pakistan has achieved a record-low fiscal deficit while maintaining development spending and generating substantial primary surpluses. For an economy long characterised by persistent budget shortfalls and debt pressures, the latest numbers represent an important shift in direction and a test of whether fiscal discipline can be sustained over the longer term.