ISLAMABAD: Despite a massive 90 per cent cut in subsidies and higher than targeted revenue collection, the country’s fiscal and current account buffers weakened during the first quarter of the current fiscal year owing to a 37pc increase in interest payments, coupled with greater development spending.
“The overall fiscal surplus narrowed to 0.8pc (Rs1.19 trillion) of gross domestic product, compared with 1.7pc of GDP (Rs2.12tr) during the corresponding period of the previous fiscal year.
“Similarly, the primary surplus declined to 1.6pc of GDP (Rs2.3tr), from 2.3pc (Rs2.94tr) recorded in the same period last year,” said the finance ministry in its Monthly Economic Update & Outlook on Thursday.
The government, however, pledged to keep fiscal policy focused on preserving stability through stronger revenue mobilisation and prudent expenditure management, the ministry said in its October edition of economic update and outlook.
Overall surplus shrinks to 0.8pc of GDP in July-September FY27
On the other hand, while flagging geopolitical tensions, trade disruptions, elevated commodity prices and uncertainty around technology investment as principal downside risks, the government expressed cautious optimism over continued economic recovery.
It drew support from better crop output, selective manufacturing industries and improving external earnings.
Export outlook
It expressed the hope that steady demand in the country’s main markets — the US, the UK and member states of the Organisation of Economic Cooperation and Development (OECD) — to support the outlook for goods and services exports.
It said the overall fiscal operations began on a positive note in FY27 as tax revenues surpassed the target. Net federal revenue amounted to Rs2.91tr, exceeding federal expenditure of Rs2.12tr.
This contributed to a federal fiscal surplus equivalent to 0.5pc of GDP.
Tax collection
Tax collection by the Federal Board of Revenue (FBR) posted a 3.6pc growth in 2MFY27, while total expenditure rose by 20.7pc. It was driven primarily by a 69.5pc surge in development expenditure, significantly outpacing the 14.7pc growth in current expenditure.
The relatively moderate increase in current expenditure was largely attributable to an 8.1pc decline in non-interest expenditure, mainly reflecting a sharp 90pc reduction in subsidies. In contrast, mark-up payments increased by 36.6pc.
During the July-September quarter of FY27, the FBR’s tax collection grew by 7pc to reach Rs3.08tr, exceeding the target by Rs33.2bn. Both direct and indirect taxes posted a positive growth, rising by 5.5pc and 8.3pc, respectively.
Within indirect taxes, sales tax recorded the strongest growth at 11.6pc, followed by federal excise duty at 3.6pc and customs duties at 0.5pc.
Agricultural output
The ministry expected a stronger agricultural output to support food processing, rural incomes and trade, while machinery imports contribute to productive capacity as investment projects are implemented. Rising services exports and remittances provide a further source of foreign exchange and household income.
The stronger reserve position and broader access to external financing is creating a more supportive environment, it added.
Published in Dawn, October 30th, 2026
