ISLAMABAD: Claiming a rare Rs1.5 trillion federal fiscal surplus — instead of usual deficits — in the first quarter of the current fiscal year, the government on Monday conceded rising prices of essential commodities due to supply disruptions caused by floods and closure of the Pak-Afghan border.

“Flood-related supply disruptions and temporary border closures have put upward pressure on prices of a few essential commodities”, said the Ministry of Finance (MoF) in its Monthly Economic Update & Outlook – October 2025. However, it claimed inflation would remain in the target range of 5-6pc this month, which had already reached 5.6pc in September, against the MoF’s forecast of 3.5-4.5pc made on Sept 30.

The MoF said net federal revenues surged by 231.4pc to Rs3.27 trillion in the first two months (July-August) of FY26, compared to Rs986.7 billion in the same period last year. This was driven by a 721.1pc jump in non-tax revenues and a 14.1pc rise in FBR tax collections.

“The surge in non-tax revenues was mainly led by higher State Bank of Pakistan profits, supplemented by increased receipts from dividends, defence receipts, Windfall Levy against crude oil, the Gas Infrastructure Development Cess, and the petroleum levy. During July-Sep FY26, FBR’s tax collection rose to Rs2.884tr, up 12.5pc.

Finance ministry warns of inflation from supply disruptions, trade hurdles

On the expenditure side, total outlays increased modestly by 7.6pc to Rs1.76tr. “Consequently, the federal fiscal balance recorded a surplus of Rs1.509tr, compared to a deficit of Rs648.8bn last year. The primary balance also improved sharply, posting a surplus of Rs2.939tr, up from Rs49.4bn in the corresponding period”, it said.

It said the climate shocks weighed on agriculture, but the sector showed early signs of resilience. According to a preliminary assessment, the recent flood has caused Rs430bn losses to the agriculture sector, damaging crops like rice, cotton, sugarcane, maise, fodder and vegetables. “Nevertheless, recent indicators suggest that recovery efforts are underway, supported by increased agricultural credit, higher machinery imports, and improved fertiliser off-take”, it said.

On the other hand, the MoF hoped for improved export prospects, driven by stronger economic momentum in Pakistan’s export destinations. “The Composite Leading Indicator position of the US, UK, China and the euro area has further strengthened compared to the last month, with all moving above or near their long-term potential levels, signalling improved export prospects for Pakistan”, it said.

The monthly report said Pakistan’s economy maintained its recovery path despite flood-related disruptions. “Industrial activity remains resilient, supported by a rebound in Large-Scale Manufacturing, particularly in cement, automobiles, and allied sectors, while exports and remittances are showing steady improvement”, it said, adding the external sector remained stable, with a current account surplus recorded in September, amid robust remittance inflows.

It highlighted the successful IMF review under the Extended Fund Facility and the Resilience and Sustainability Facility, noting that it reaffirmed confidence in Pakistan’s reform trajectory and prudent macroeconomic management. “Continued progress in privatisation, digital governance, and CPEC Phase 2.0 joint ventures underscores the government’s commitment to fiscal consolidation, structural transformation, and sustainable, inclusive growth”, the report added.

The MoF said the government would remain firmly committed to maintaining fiscal discipline and providing targeted social protection within a sound and forward-looking macroeconomic policy framework.

Published in Dawn, October 28th, 2025