📈 Govt. Projects Sharp Primary Surplus Decline, Reaffirms Reforms

The Ministry of Finance’s Final Budget Position Report 2025 highlights a temporary fiscal moderation ahead, alongside strong 2025 performance. • Fiscal Outlook & Reforms: The 2026 primary surplus is projected to fall to 1.0% of GDP from a record 5.4% in 2025. This decline is driven by external shocks—including a Rs. 500 Bn supplementary allocation for Cyclone Ditwah relief and Middle East war pressures—rather than policy shifts. The government aims to restore the surplus to at least 2.6% from 2027 under the IMF EFF program. • 2025 Revenue Performance: Nominal revenue and grants surged 34.1% YoY to Rs. 5,485.6 Bn (16.7% of GDP). Tax revenue jumped 36.3% to Rs. 5,049.2 Bn, lifting the tax-to-GDP ratio to 15.4%. Key drivers included the reopening of vehicle imports (driving a 148.2% spike in import duties to Rs. 275.9 Bn), a 33.4% rise in VAT to Rs. 1,746.9 Bn, and an 11% increase in income tax to Rs. 1,139.4 Bn. • Expenditure & Deficit: Total 2025 spending rose just 1.6% to Rs. 6,230.4 Bn, narrowing the overall budget deficit to Rs. 744.9 Bn (2.3% of GDP). Recurrent spending fell 2%, with interest payments declining 7% to Rs. 2,500.7 Bn (absorbing 45.9% of revenue vs 80.5% in 2023). Welfare spending expanded, with Aswesuma allocations rising 27.7% to Rs. 238 Bn. • Debt Dynamics: Central Government debt rose 5% to Rs. 31.1 Trillion by end-2025. However, the debt-to-GDP ratio fell to 94.9% (from 98.4%) due to strong GDP and revenue growth. Domestic debt dropped to 59.3% of GDP, while foreign debt stood at 35.6%. _Note: Data based on the official Treasury Final Budget Position Report._