Pakistan’s economy has shown significant fiscal improvement during the first nine months of the ongoing fiscal year, with the country recording its lowest-ever fiscal deficit alongside a strong primary surplus, reflecting growing macroeconomic stability and tighter fiscal management.
The latest fiscal data for 9MFY26 shows the fiscal deficit narrowing sharply to 0.7% of GDP, compared to 2.6% in the same period last year, marking the first time in Pakistan’s history that the fiscal deficit has dropped below 1% of GDP.
The improvement comes at a time when the country’s current account has also moved into surplus, marking a simultaneous recovery in Pakistan’s long-standing twin deficits, which have historically weakened economic stability, pressured foreign exchange reserves and fueled inflation.
Pakistan posted a primary surplus of 3.2% of GDP in 9MFY26, compared to a 3% surplus during the corresponding period of FY25. The primary balance excludes interest payments and is considered a key measure of fiscal sustainability as well as the government’s ability to manage expenditures without relying heavily on borrowing.
Economists say the sustained primary surpluses indicate fiscal consolidation efforts undertaken over the past two years are beginning to deliver structural improvements in public finances. Revenue indicators also continued to strengthen, with tax-to-GDP and total revenue-to-GDP ratios showing steady improvement. Officials attribute the gains to ongoing tax reforms, digitization measures, improved enforcement and broader compliance efforts aimed at expanding the tax base.
On the expenditure side, the government maintained spending discipline despite persistent global inflationary pressures and heavy debt servicing obligations.
Current expenditures remained stable, while development spending continued to support infrastructure projects and economic activity. Defense expenditure as a percentage of GDP also stayed broadly contained, highlighting tighter overall fiscal management.
The stronger fiscal performance is gradually improving Pakistan’s debt outlook as well.
Analysts believe sustained primary surpluses are helping ease refinancing pressures, improve debt maturity profiles and slowly reduce public debt ratios, strengthening sovereign sustainability after years of external financing challenges.
Additionally, Pakistan’s external sector has shown marked improvement. For decades, the economy struggled with persistent fiscal and current account deficits simultaneously. In 9MFY26, however, the country recorded both a sharply lower fiscal deficit and a current account surplus, reflecting improved macroeconomic coordination and policy discipline.
The reduction in twin deficits has supported exchange rate stability, strengthened foreign exchange reserves and helped moderate inflationary pressures, while also boosting investor confidence.
Investor sentiment toward Pakistan has improved alongside the stronger macroeconomic indicators. The country has returned to international capital markets following a prolonged period of financial stress, while manufacturing activity, corporate earnings, foreign inflows and IPO activity have also shown improvement.
International financial institutions, credit rating agencies and foreign investors have increasingly acknowledged Pakistan’s improving fiscal and external position as the country continues implementing reforms under economic stabilization programs.
Despite the positive momentum, economists warn that sustaining these gains will require continued fiscal discipline, structural reforms and political stability, especially given Pakistan’s vulnerability to external shocks, commodity price fluctuations and domestic revenue limitations.
Nonetheless, the latest data points to one of Pakistan’s strongest macroeconomic recoveries in recent years, signaling a gradual transition toward greater economic stability, fiscal credibility and sustainable long-term growth.