Pakistan’s Fiscal Position Weakens Amid Rising Interest Payments in FY27 Q1

ISLAMABAD: Pakistan’s fiscal and current account buffers have deteriorated in the first quarter of fiscal year 2027, driven by a significant 37% surge in interest payments and increased development spending, despite a drastic 90% reduction in subsidies and revenue collection exceeding targets.

The Ministry of Finance’s latest Monthly Economic Update & Outlook report reveals that the overall fiscal surplus has contracted to 0.8% of GDP (Rs1.198 trillion), down from 1.7% of GDP (Rs2.124 trillion) during the same period last year. Additionally, the primary surplus fell to 1.6% of GDP (Rs2.3 trillion) from 2.3% of GDP (Rs2.94 trillion) in FY26.

This decline in fiscal health raises concerns about the government’s ability to maintain economic stability amidst rising geopolitical tensions and global economic uncertainties. The Ministry emphasized its commitment to enhancing revenue mobilization and managing expenditures prudently to stabilize the economy.

Looking ahead, the government plans to implement measures aimed at bolstering fiscal discipline and addressing the challenges posed by escalating interest obligations. Stakeholders are urged to monitor upcoming policy announcements that may impact fiscal strategies and economic recovery.