IMF and Pakistan Engage in Ongoing Budget Discussions

islamabad is in continued discussions with the International Monetary Fund (IMF) regarding the upcoming fiscal year 2025-26 federal budget. These talks follow high-level policy discussions that began on May 19. The IMF mission concluded its recent visit,but negotiations are set to continue remotely in the coming days.

The government has postponed the budget announcement until June 10 due to these ongoing deliberations. This delay underscores the critical nature of reaching an agreement with the IMF to ensure financial stability and economic planning.

Constructive Dialog and Key focus Areas

Nathan Porter, the IMF’s Pakistan mission chief, characterized the recent discussions as constructive. he stated, We will continue discussions towards agreeing over the authorities’ FY26 budget over the coming days.

The IMF’s primary focus is on enhancing revenue through improved compliance and expanding the tax base, while also prioritizing essential expenditures. These measures are crucial for achieving fiscal consolidation and sustainable economic growth.

Discussions focused on actions to enhance revenue – including by bolstering compliance and expanding the tax base – and prioritise expenditure.

Nathan porter, IMF pakistan Mission Chief

Commitment to Fiscal Consolidation

Pakistani authorities have reaffirmed their commitment to fiscal consolidation, aiming for a primary surplus of 1.6% of GDP in FY2026. This commitment includes safeguarding social and priority expenditures,ensuring that essential services and programs are maintained.

The IMF staff visit focused on recent economic developments, program implementation, and the budget strategy for FY2025-26. Discussions also encompassed ongoing energy sector reforms aimed at improving financial viability and reducing the high-cost structure of Pakistan’s power sector.

Monetary Policy and Exchange Rate Flexibility

maintaining a tight, data-dependent monetary policy remains a priority to ensure inflation is anchored within the central bank’s medium-term target range of 5-7%. Rebuilding foreign exchange (FX) reserve buffers and allowing for greater exchange rate flexibility are also critical to strengthening resilience to external shocks.

In this context, maintaining an appropriately tight and data-dependent monetary policy remains a priority to ensure inflation is anchored within the central bank’s medium-term target range of 5-7 per cent.

Nathan porter, IMF Pakistan Mission Chief

The IMF acknowledged the strong collaboration and commitment to sound policies from both federal and provincial authorities. The next IMF mission, associated with the next EFF and RSF reviews, is expected in the second half of 2025.

Imran Khan Seeks Input on Budget

As the federal government prepares for the budget, incarcerated ex-prime minister Imran Khan has requested a meeting with Finance Minister Muhammad Aurangzeb. Khan, whose PTI party governs Khyber Pakhtunkhwa (KP), believes his guidance is necessary for budgetary and policy matters.

According to a post on Khan’s X account, As party chairman, it is necessary for the government of Khyber Pakhtunkhwa to seek my guidance on budgetary and policy matters… The people have elected PTI to govern, and therefore, the duty for policymaking also rests with us. Consequently, it is essential that [KP Chief Minister] Ali Amin Gandapur and the finance minister meet with me before the budget is presented.

Khan also emphasized the importance of national unity, citing the struggling economy and emigration of investors and youth as reasons for dialogue.

The KP government has called for an immediate meeting of the National Finance Commission (NFC) to ensure the transfer of constitutional funds allocated for the merged districts before the budget announcement.

Considerations for the Upcoming Budget

The IMF mission held multiple discussions, including a wrap-up session with Finance Minister Aurangzeb. An IMF delegation led by Jihad Azour also met with Prime Minister Shehbaz Sharif and President Asif ali Zardari.

defense allocations for the next year had a significant budgetary impact, which could not be fully resolved with the IMF staff during the meetings. Engagements with the IMF will continue virtually to finalize the defense budget and other budget estimates, including the federal public sector development program, now estimated at Rs1 trillion.

There are currently no plans to increase the rate of petroleum levy, except for a separate imposition of a carbon levy on various items, starting at approximately Rs3 per liter and increasing to Rs5 in the second year to meet RSF requirements.

Relief measures for the salaried class and real estate sector, and also expenditure control measures, have been discussed with the IMF. These measures are subject to an choice resource envelope to be presented by the authorities, with fiscal consolidation remaining a central theme of the next year’s budget.

the budget announcement will be followed by a extensive debate in the parliament,allowing standing committees on finance to review the proposals and provide input before its passage before June 30.