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Pakistan’s fiscal position in FY26 presents a paradox: apparent stability that masks deep-seated fragility. While the overall fiscal deficit narrowed to 1.6 per cent of GDP during the first 11 months (July-May) — with the July-April period falling to 1.1pc — this achievement rests on fragile foundations.
Total public debt stood at a staggering Rs83.29 trillion ($298.5 billion) by the end of March 2026, while interest payments consumed Rs6.16tr in just 11 months. The International Monetary Fund (IMF) projects a fiscal deficit of 3.2pc for FY27. With the Federal Board of Revenue missing its IMF tax target by Rs975bn and debt servicing crowding out development spending, the country walks a fiscal tightrope — stabilisation today, sustainability tomorrow remains an open question.
While headline fiscal indicators suggest some macroeconomic stabilisation, the underlying pressures become far clearer when one examines the power sector. Capacity payments, circular debt and costly contractual obligations have emerged among the largest structural drivers of the country’s fiscal stress.
The defining feature of many Power Purchase Agreements (PPAs) is the capacity payment mechanism. Under these contracts, power producers receive fixed payments to recover capital costs, debt servicing and fixed operating expenses regardless of whether electricity is generated.
