As preparations for the federal budget for the fiscal year 2025-26 near completion, Pakistan’s negotiations with the International Monetary Fund (IMF) have entered a crucial phase, with both sides working to finalize key targets and policy measures.

According to officials from the Ministry of Finance, the IMF has made several critical demands as part of its recommendations for the upcoming budget. These include a significant reduction in non-developmental expenditures, a ban on foreign travel and property or vehicle purchases by non-filers, and limiting subsidies exclusively to the poor.

While the IMF has agreed to a slight increase in government employees’ salaries, it has emphasized strict fiscal discipline. The global lender has also given its nod for a rise in the defence budget.

One of the most pressing points of discussion is the IMF’s proposed tax collection target of Rs14,300 billion, a figure the Pakistani side is hoping to bring down during ongoing talks. In addition, the IMF wants to eliminate sector-wide tax exemptions, including those in agriculture and industry. It is pressing for the implementation of a carbon levy and the inclusion of agricultural tax collection in the budget action plan.

The Pakistani government, meanwhile, is aiming to remove the super tax and introduce relief measures for the industrial and agricultural sectors, citing concerns over economic slowdown and inflation. However, the IMF insists on broadening the tax base, including by taxing agricultural inputs, fertilizers, and machinery -- a move likely to face resistance from key stakeholders.

A high-level virtual negotiation session is scheduled for today (Tuesday), led by Pakistan’s finance secretary and chairman of the Federal Board of Revenue (FBR). During this round, key budgetary figures, including tax targets, primary surplus, budget surplus, and the current account deficit, are expected to be finalised.