Pakistan will need to generate more than Rs. 700 billion in additional revenue and maintain strict fiscal discipline to meet budget targets for FY2026-27, following the latest discussions between Islamabad and the International Monetary Fund (IMF).
An IMF delegation led by Iva Petrova concluded its visit to Islamabad after holding talks with Pakistani authorities on economic performance, budget planning, and reform progress under the Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) programs.
According to the IMF, Pakistani authorities reaffirmed their commitment to achieving a primary budget surplus of 2% of GDP in FY27, a key objective aimed at improving fiscal stability and strengthening the country’s economic resilience.
To achieve this target, the IMF emphasized the need for broader tax reforms, stronger tax administration, improved public spending efficiency, and better financial management at both federal and provincial levels.
Officials familiar with the negotiations said Pakistan would require additional revenue measures equivalent to around 0.6% of GDP, estimated at over Rs. 700 billion, to offset weaker tax collection growth and maintain an upward trend in the tax-to-GDP ratio.
The IMF reportedly wants much of the additional revenue to come through expansion of the tax base rather than increasing tax rates on existing taxpayers.
The Fund also stressed the importance of expenditure control, recommending that primary government spending remain largely unchanged as a share of GDP. However, it supported increased allocations for targeted social assistance programs, as well as health and education sectors.
In addition, the IMF advised that low-priority development projects should be discontinued if revenue targets are not achieved.
The discussions also focused on exchange rate flexibility and the need to develop a deeper foreign exchange market to better absorb external economic shocks.
Furthermore, the IMF encouraged Pakistan to maintain sufficient fiscal contingency reserves to manage risks linked to rising energy prices and regional uncertainty. It also recommended preserving any savings generated through lower interest payments to strengthen fiscal buffers rather than increasing spending.
Beyond budgetary matters, both sides reviewed progress on structural reforms, including energy sector restructuring, state-owned enterprise reforms, market liberalization, and financial sector improvements.
The next IMF review mission is expected to take place during the second half of 2026.
