ISLAMABAD: The International Monetary Fund (IMF) has announced a preliminary agreement with Pakistani officials regarding a financial framework aimed at guiding the country’s budget for the fiscal year 2025-26. This agreement marks a significant step towards further discussions on various fiscal policies that are crucial for Pakistan’s economic stability.
Finance ministry sources indicate that negotiations will continue in the upcoming days, focusing on essential aspects such as revenue targets, development spending, defense budgets, and the contentious tariff reform plan affecting local industries. Key areas yet to be resolved include tax relief for salaried individuals, adjustments to the defense budget, and regulations governing the real estate sector.
The IMF mission, led by Nathan Porter, recently concluded its visit to Pakistan, which began on May 19. The mission’s objectives included reviewing Pakistan’s economic situation, assessing compliance with the 2024 Extended Fund Facility (EFF), and discussing the upcoming federal budget.
Porter indicated that the discussions were productive, focusing on the budget proposals for FY26 and broader economic reform strategies supported by the IMF’s financial assistance programs. The next review related to these agreements is anticipated in the latter half of 2025.
Officials from the finance ministry reiterated their dedication to achieving fiscal consolidation while protecting essential social expenditures, with a goal of attaining a primary surplus of 1.6 percent of GDP in FY26. The discussions during the IMF mission emphasized enhancing revenue generation through improved compliance and an expanded tax base, given the significant shortfalls faced by the Federal Board of Revenue (FBR) this fiscal year.
Tax officials have acknowledged the need for realistic revenue targets, taking into account Pakistan’s economic growth and inflation rates, rather than pursuing unattainable goals. Additionally, the talks included vital reforms in the energy sector aimed at increasing financial stability and lowering costs within Pakistan’s power industry, as well as other structural reforms designed to promote sustainable economic growth.
Porter noted the importance of maintaining sound macroeconomic policies and building financial resilience. This includes a commitment to a tight, data-driven monetary policy to keep inflation within the central bank’s target range of 5-7 percent. Furthermore, efforts to restore foreign exchange reserves, maintain a functioning forex market, and allow for greater exchange rate flexibility are essential to enhance Pakistan’s defenses against external economic shocks.
The IMF team expressed gratitude towards the federal and provincial authorities for their cooperation and constructive discussions, emphasizing the continuous engagement and dialogue moving forward.
