Pakistan's public finances have recorded their strongest showing in more than two decades. The consolidated budget deficit fell to Rs3.3trn, or 2.6% of GDP, in the 2025-26 fiscal year, the lowest in 22 years, according to a summary of federal and provincial fiscal operations released by the Finance Division. The government also posted a primary surplus, which excludes interest payments, of Rs3.6trn, or 2.9% of GDP, helped by a steep fall in the cost of servicing its debt.

The figures show total revenue of Rs19.8trn, equivalent to 15.6% of GDP, against total expenditure of Rs23.1trn, or 18.2% of GDP. Khurram Shahzad, adviser to the finance minister, described the outcome as a historic strengthening of the public accounts. He called it a decisive shift away from recurring fiscal stress towards discipline, stability and sustainable growth.

The turnaround has been swift by Pakistani standards. According to Mr Shahzad, the deficit stood at 7.9% of GDP in 2021-22, the highest since 2000-01, before easing to 7.8% in 2022-23, 6.8% in 2023-24 and 5.4% in 2024-25. Over three years it has narrowed by 5.2 percentage points, while the primary balance has swung by 3.9 points, from a deficit of 1.0% to a surplus of 2.9%, the largest since at least 2000-01.

That makes three consecutive years of primary surpluses: 0.9% of GDP in 2023-24, 2.4% in 2024-25 and 2.9% last year. Mr Shahzad argued that these surpluses are now improving debt dynamics. Debt growth has slowed to a 20-year low, he said, and the debt-to-GDP ratio has declined to around 68%, easing financing pressure and creating greater room for development spending.

Lower borrowing costs did much of the heavy lifting. Interest payments fell to about Rs6.95trn from Rs8.9trn a year earlier, a reduction of nearly Rs2trn. As a share of total revenue, they dropped from roughly 61% in 2023-24 to 35% in 2025-26. Domestic mark-up accounted for Rs6.03trn of last year's bill and foreign interest for Rs917.2bn. On the revenue side, tax receipts reached Rs14.2trn, with the Federal Board of Revenue collecting Rs13.01trn. Non-tax income came to Rs5.6trn. That sum leaned heavily on two sources: a surplus profit of Rs2.4trn transferred by the State Bank of Pakistan and Rs1.6trn from the petroleum levy, which together made up the bulk of non-tax receipts.

Smaller contributions filled out the picture. Dividends brought in Rs226.6bn, mark-up from public-sector enterprises and others Rs157.5bn, and royalties on oil and gas Rs131.6bn. The natural-gas development surcharge yielded Rs52.9bn, passport fees Rs48.5bn, and a windfall levy on crude oil Rs24.2bn. A levy on captive power plants raised Rs11.358bn, and miscellaneous receipts amounted to Rs275.7bn.

Spending beyond interest remained substantial. Defence absorbed Rs2.6trn, grants to others Rs1.86trn, the running of the civil government Rs1.03trn and subsidies Rs1.013trn. Pensions cost around Rs1trn. Taken together with interest, these items illustrate how little of the budget lies outside committed obligations.

The provinces also contributed to the improved balance. The four provincial governments jointly recorded a surplus of Rs1.45trn in 2025-26, with revenues of Rs10.01trn exceeding their expenditure of Rs8.6trn. That cushion helped offset the federal government's shortfall in the consolidated accounts.

The headline numbers are undeniably striking for a country that was running deficits close to 8% of GDP only four years ago. Yet the data also show how much of last year's gain rested on a shrinking interest bill and on large transfers from the central bank and fuel levies. Whether the improvement proves lasting will depend on how those sources hold up in the years ahead.