Budget Talks Progress as IMF Stresses Spending Cuts and Climate-Tagged Subsidies
The International Monetary Fund (IMF) has projected that Pakistan’s total revenue will rise to nearly Rs20 trillion in the fiscal year 2025-26. This is a significant increase from the current year’s estimate of under Rs17.8 trillion. The IMF, however, emphasized the need for tighter spending controls to ensure debt sustainability.
Following three days of technical discussions held online, formal policy-level talks are set to begin on May 19 and will continue until May 23. Officials expect these negotiations to finalize budgetary measures and the broader economic framework, paving the way for Pakistan to present its federal budget on June 2.
According to IMF forecasts, Pakistan’s economy is expected to grow at a rate of 3.6 percent next fiscal year, while inflation could average 7.7 percent—up from the current 5.1 percent. These factors are likely to push tax revenues up by over Rs1.4 trillion compared to this year’s estimated Rs12.4 trillion.
In addition to the Federal Board of Revenue’s collections, the IMF expects provincial governments to play a larger role in broadening the tax base. Special attention is being directed toward agriculture income tax, which remains underutilized despite its potential for boosting overall revenue.
The IMF also urges Pakistan to reduce overall expenditures from the current 21.6 percent of GDP to 20.3 percent in the next fiscal year. Even with these cuts, total spending is projected to reach Rs26.57 trillion, up significantly from this year’s estimated Rs18.9 trillion, partly due to security-related adjustments still under discussion.
Meanwhile, Pakistan’s fiscal deficit is expected to shrink slightly—from 5.6 percent of GDP this year to 5.1 percent next year, equal to around Rs6.67 trillion. The Ministry of Finance has also directed all departments to include climate-related details in subsidy reports, a key condition under the IMF’s Extended Fund Facility (EFF) agreement.