Key Points
- Pakistan reaffirms commitment to 2 per cent primary surplus target for FY2027
- IMF-backed reforms span taxation, energy pricing, SOEs and climate financing
ISLAMABAD: Pakistan and the International Monetary Fund (IMF) will continue negotiations over the country’s next federal budget despite the conclusion of a week-long review by an IMF mission to Islamabad.
So far, the mission review has finalised fiscal targets, taxation measures and structural reforms as part of the conditions attached to the IMF $7 billion Extended Fund Facility (EFF) and an over $1.4 billion climate support facility called Resilience and Sustainability Facility (RSF).
The IMF said its mission, led by Iva Petrova, visited Islamabad from May 13 to May 20 and held discussions with Pakistani authorities on recent economic developments, reform implementation and the budget strategy for fiscal year 2027.
In a statement issued after the conclusion of the visit, the IMF said discussions covered economic conditions, fiscal consolidation plans, monetary policy, energy-sector reforms and the impact of disruptions linked to the conflict in the Middle East.
Pakistan reaffirmed its commitment to maintaining a primary budget surplus target of 2 per cent of gross domestic product in FY2027. The IMF considers it essential to preserve macroeconomic stability and strengthen fiscal sustainability.
The envisaged fiscal consolidation must be supported by broadening the tax base, improving tax administration, enhancing spending efficiency and strengthening public financial management at both federal and provincial levels, according to the IMF.
However, the Fund stopped short of announcing a final understanding on Pakistan’s upcoming federal budget, saying discussions on the FY2027 budget would continue in the coming days even after the formal conclusion of the mission.
According to a Pakistani Finance Ministry official, the IMF kept the talks open to monitor the budget formulation till its final approval next month from the country’s parliament. The review would conclude with the enactment of the Finance Act 2026, by incorporating the IMF conditions and recommendations, particularly on taxation, he added.
The continued negotiations underscore the sensitivity of Pakistan’s budget preparations as the government attempts to balance IMF-mandated fiscal tightening with political and economic pressures.
The government is facing a fiscal crunch in the wake of inflation, slowing industrial activity and growing security expenditures.
The IMF mission also discussed progress under Pakistan’s ongoing Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF), which together form the backbone of the country’s current international financial support framework.
Earlier this month, the IMF Executive Board completed the latest review (approval) of Pakistan’s reform programme, enabling the immediate disbursement of about $1.1 billion under the EFF arrangement and roughly $220 million under the RSF arrangement.
The latest approvals to aggregate $1.32 billion brought total disbursements under the two programmes to nearly $4.8 billion, according to the IMF.
Pakistan’s main IMF programme, approved last year, is valued at around $7 billion, critical to stabilising the country’s external financing position, rebuilding foreign exchange reserves and restoring investor confidence after years of economic volatility.
Pakistan’s central bank, the State Bank of Pakistan, reiterated its commitment to maintaining an “appropriately tight monetary policy stance” to anchor inflation risks and closely monitor potential second-round effects from increases in energy prices.
The Fund also stressed that exchange-rate flexibility should continue to serve as a key shock absorber for the economy. The IMF also required continued efforts to deepen Pakistan’s foreign exchange interbank market.
The latest discussions also focused heavily on structural reform-conditionality attached to the IMF programme, including measures related to the energy sector, state-owned enterprises, public finance management and market liberalisation.
Pakistan has been under sustained IMF pressure to reduce energy-sector losses, rationalise electricity and gas tariffs, reform subsidy mechanisms and address mounting circular debt in the power sector.
The Fund said talks additionally covered reforms aimed at attracting high-quality private investment and supporting long-term economic growth.
Another major component of the negotiations involved climate change-focused reforms under the Resilience and Sustainability Facility.
The RSF was approved to help Pakistan strengthen economic resilience to climate shocks after the devastating floods that severely affected the country in recent years.
According to the IMF, discussions under the RSF framework included efforts to establish a disaster risk financing mechanism, integrate climate considerations into budget planning and public investment decisions, and advance reforms related to power subsidies.
The Fund said its next mission to Pakistan, expected to include Article IV consultations and formal reviews under the EFF and RSF arrangements, is planned for the second half of 2026.
Pakistan’s government prepares to unveil its FY2027 federal budget amid pressure to increase tax revenues while maintaining economic recovery, after inflation eased significantly from record highs seen during the country’s recent balance-of-payments crisis.
Pakistani officials have already indicated that the IMF is seeking stronger revenue mobilisation measures, including improved tax collection from agriculture, property and services sectors, particularly at the provincial level.
The IMF has also pushed Pakistan to widen the tax net, reduce exemptions and improve compliance through digitalisation and administrative reforms at the Federal Board of Revenue.
