The U.S. Treasury Department announced on Wednesday that the federal budget deficit experienced a significant contraction in March, attributed to a decrease in government spending and an uptick in revenue, coinciding with the peak of the tax-filing season.

The deficit for the month stood at $236 billion, marking a substantial 38% decrease from the $378 billion shortfall recorded in March 2023. A notable 18% reduction in outlays to $569 billion was partly due to the absence of large bank failures necessitating federal intervention this year, as pointed out by Treasury officials. Additionally, a reduction in expenditures from the Department of Education compared to the previous year contributed to the lower outlays in March. On the revenue side, there was a 6% increase in receipts, amounting to $332 billion.

The figures surpassed the expectations of economists surveyed by Reuters, who had anticipated a March deficit of $197.5 billion.

Examining the fiscal year’s first half, the deficit decreased by $36 billion, or 3%, settling at $1.065 trillion. The Treasury reported a 7% increase in receipts, reaching a record $2.188 trillion, while outlays saw a modest 3% rise to $3.253 trillion.

A significant portion of the government’s expenditures continues to be dominated by interest costs on the national debt, which surged 36% year-to-date to $522 billion. This expense is only surpassed by Social Security in terms of individual line item costs. Specifically, for March, debt servicing expenses reached $89 billion, a 14% increase from the previous year.

The average interest rate on Treasury securities experienced an uptick during the month, climbing to 3.22%, which is 65 basis points higher than the previous year.

Furthermore, individual tax refunds, which are subtracted from the total receipts, were $11 billion lower than the previous year, showing a 16% decrease. Meanwhile, individual withheld receipts for March saw a slight increase of $8 billion, or 2%, from the year before.

This report indicates a positive turn in the U.S. fiscal outlook, at least in the short term, as reduced government spending and increased tax receipts contribute to narrowing the federal budget deficit.