The International Monetary Fund (IMF) mission has concluded its latest visit to Pakistan, setting a primary budget surplus target of 1.6 percent of gross domestic product (GDP) for the fiscal year 2025-26.
However, Pakistan and the IMF have not yet reached full consensus on the upcoming budget targets, with negotiations expected to continue in the coming weeks.
Led by Nathan Porter, the IMF delegation arrived in Islamabad on May 19 to review Pakistan’s recent economic developments, assess progress under the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF), and initiate discussions on the next federal budget.
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The mission concluded with a statement on Friday highlighting “constructive discussions” with Pakistani authorities but acknowledged that further talks are needed to finalise the budget framework.
Fiscal discipline and budget targets
The IMF mission emphasised the importance of anchoring Pakistan’s fiscal policy in data-driven discipline, with a focus on increasing revenues through widening the tax net and enhancing tax compliance. Expenditure reforms were also discussed, prioritising allocations to key sectors while protecting vulnerable populations through targeted subsidies.
“Pakistani authorities reiterated their commitment to fiscal consolidation and safeguarding priority social spending,” the IMF statement noted. The Fund welcomed the government’s agreement to aim for a primary surplus of 1.6 percent of GDP in the upcoming fiscal year.
However, government sources revealed that full agreement on budget targets remains pending, particularly regarding tax concessions sought for sectors such as the salaried class, real estate, and other areas to support economic recovery. The IMF has neither accepted nor rejected these demands and indicated that decisions would be based on detailed data and overall strategy.
Energy sector and inflation control
Energy sector reforms remained a key area of focus during the visit. The IMF stressed the need to address inefficiencies and high costs in Pakistan’s power sector to reduce fiscal losses and promote affordable energy access.
Monetary policy discussions reaffirmed the State Bank of Pakistan’s medium-term inflation target of 5 to 7 percent. The IMF urged continuation of tight monetary policy and fiscal discipline to keep inflation within this range.
The mission also highlighted the importance of restoring foreign exchange reserves and maintaining a flexible exchange rate regime to support macroeconomic stability.
Provincial finances and tax reforms
The IMF urged provincial governments to reduce expenditures and boost revenue collection, including better enforcement of agricultural income tax. The Fund’s focus on broadening the tax base and improving collection mechanisms reflects a broader effort to build fiscal buffers and promote sustainable growth.
Next steps and funding review
According to a Reuters report citing the IMF statement, the next formal review of Pakistan’s funding under the Extended Fund Facility is expected in the second half of 2025. The Fund confirmed it would continue discussions with Pakistani authorities to finalise budget terms for the 2026 financial year.
“The IMF’s priority remains anchoring inflation within the central bank’s medium-term target range of 5–7 percent,” the statement said, adding that Pakistani authorities remain committed to fiscal consolidation while targeting a primary surplus of 1.6 percent of GDP in FY2026.
Negotiations over the current loan programme and budget have been ongoing since mid-May, initially via virtual meetings with Pakistani officials in Turkey, followed by in-person talks in Islamabad from May 19 onwards.
