Fiscal discipline achieved – can growth be next?

A Business Recorder commentary notes that the combined fiscal gap for FY26 narrowed to 2.6 percent of GDP, its smallest since FY04, against an average near 7.9 percent in FY22 and FY23 when the country neared default. A primary surplus for a third straight year, reaching 2.9 percent of GDP, pulled gross public debt down to 68.3 percent from 75.2 percent in FY23. Debt servicing also absorbed far less of net fiscal revenue, falling to 66 percent from 122 percent.

The commentary argues that this progress came at a cost, as a heavy tax load, including the petroleum levy, and thin development spending have weighed on growth. In the FY27 budget the government trimmed taxes only marginally, so the burden remains above its FY22 level, which the writer says is too little to change investor behaviour. Revenue targets, especially for FBR taxes, are called unachievable by the commentary, reflecting IMF pressure to keep running primary surpluses.

Total consolidated revenue rose 9.9 percent to Rs19.8 trillion, lagging nominal GDP growth of 11.6 percent and easing in real terms. Federal spending fell 10.3 percent to Rs15.3 trillion mainly because debt servicing costs dropped 22 percent, while defence spending climbed 18 percent. Subsidies and federal PSDP spending were cut, and the writer warns that lower development spending is costing jobs.