Fact 1: Pakistan’s fiscal deficit was 9.1 per cent of GDP in FY2018-19. Fact 2: It is now projected at around 3.6 per cent. Fact 3: That is a decline of 5.5 percentage points. Fact 4: This is the lowest deficit in more than two decades.
This is not cosmetic. This is not minor. This is a major fiscal correction. Less deficit means less borrowing. Less borrowing means less pressure on banks. Less pressure on banks means more room for private credit. Less borrowing also means less inflationary pressure.
The arithmetic: A fall from 9.1 per cent to 3.9 per cent means the government is borrowing roughly Rs6.7 trillion less than it would have borrowed if the deficit were still at the FY2018-19 level.
In plain English: The deficit reduction from 9.1 per cent to 3.9 per cent is worth nearly Rs6.7 trillion in avoided borrowing — almost an entire second federal budget inside the budget.
Why does a lower deficit matter for a common Pakistani? Because every rupee the government does not borrow is a rupee that can remain available for businesses, farmers, exporters and households. When borrowing pressure falls, inflationary pressure can ease. When the deficit comes down, the state’s future debt burden grows more slowly.
Cold truth: The deficit has come down. The burden has not. Colder truth: The budget deficit has fallen; the citizen’s pain has not.
Red alert: A lower deficit is not the same as reform. The PML-N has reduced the deficit, but it has not reformed the state. Current expenditure, expected at around Rs16 trillion, remains rigid. State-owned enterprises continue to impose an annual fiscal drain of Rs2 trillion. The energy sector remains trapped in a circular debt estimated at over Rs5 trillion. Development spending remains a Rs4 trillion blackhole. The documented taxpayer remains heavily overburdened. The deficit has come down, but the structure that produces Pakistan’s fiscal crisis remains intact.
The pattern is clear: a lower deficit is good. A lower deficit achieved by overtaxing the documented economy is dangerous. A lower deficit without reform is fragile. It can collapse with the next subsidy, the next circular-debt build-up, the next SOE bailout, the next political compromise.
Real reform would mean reducing current expenditure. Real reform would mean privatising or restructuring loss-making SOEs, not funding them every year. Real reform would mean fixing the power sector’s theft, losses, recovery and contracts, not parking the problem in circular debt. Real reform would mean measuring development by completed schools, functioning BHUs, kilometres of usable roads and water schemes — not by allocations.
There is another danger: A lower budget deficit without growth can become fiscal suffocation. If deficit reduction comes mainly through higher taxes, lower development execution and pressure on the formal economy, then the economy may stabilise on paper while businesses, households and investors remain under stress.
Final test: Budget 2026-27 should not be judged only by the deficit number. It should be judged by the reform behind the number. Has the state become smaller, smarter and more efficient? Has circular debt stopped growing? Have SOEs stopped bleeding? Has development spending produced assets citizens can see and use? If the answer is no, then Pakistan has achieved fiscal compression — not fiscal reform.
Yes, the budget deficit has come down; the reform deficit has not.
The writer is an Islamabad-based columnist.
