Pakistan Achieves Historic Fiscal Surplus of 1.4% of GDP in 1QFY25

Staff Report:

Pakistan has recorded its first-ever fiscal surplus of 1.4% of GDP (Rs1.7 trillion) during 1QFY25, based on data from the last two decades. This marks a significant improvement compared to a deficit of 0.9% in 1QFY24 and a deficit of 3.1% of GDP in 4QFY24.

Pakistan makes historic achievement in UK Shooting Championship

The primary surplus reached an all-time high of 2.4% of GDP, up from a surplus of 0.4% in 1QFY24 and a deficit of 0.6% in 4QFY24. The substantial surplus in both the fiscal balance and primary balance is primarily attributed to a large profit from the central bank, amounting to Rs2.5 trillion. Last year, the SBP recorded a profit of Rs972 billion, credited to the government in the December quarter. The SBP’s profitability surged in FY24 due to record-high open market operations (OMO) and interest rates.

Until FY22, SBP profits were credited quarterly; however, after a regulatory amendment, profits are now credited annually within 30 days of publicizing financial statements. Adjusted for SBP profit in 1QFY25, the fiscal deficit stood at 0.65% of GDP, with a primary surplus of 0.4% of GDP, compared to a fiscal deficit of 0.9% (primary surplus of 0.4%) in 1QFY24.

With a fiscal surplus of Rs1.7 trillion, the government has retired domestic borrowing of Rs1.5 trillion and external borrowing of Rs0.16 trillion during 1QFY25. Interest expenses totaled Rs1.3 trillion, a decrease of 5% year-on-year, primarily due to a 13% reduction in interest expenses on domestic debt (Rs1.08 trillion), despite an increase in domestic debt from Rs39 trillion in June 2023 to Rs47 trillion in June 2024. However, interest expenses in the next quarter are expected to rise in line with trends from the previous two years due to higher maturities and interest payments in 2Q and 4Q.

The average 6-month bill rate decreased to 18% in 1QFY25 from 23% in 1QFY24, and the benefits of falling interest rates are anticipated to manifest in upcoming quarters. The FBR tax plus PDL to GDP ratio increased to 2.3% in 1QFY25 from 2.1% in 1QFY24, while PSDP spending as a percentage of GDP fell to 0.2% from 0.3% in the same period. Development expenditure (PSDP) amounted to Rs277 billion, down 2% year-on-year, while defense expenses rose by 20% year-on-year. Transfers to provinces reached 56.4% of tax revenues in 1QFY25, compared to 49.1% in 1QFY24.