IMF Tightens Belt, Pakistan Targets 1.6% Budget Surplus
The International Monetary Fund has increased Pakistan’s primary budget surplus target to 1.6 percent of GDP for FY2025-26, up from this year’s 1 percent, with a shift in focus from tax hikes to strict control over expenditures.
According to the IMF’s fiscal framework, total revenue is projected to increase by 0.7 percent of GDP, while expenditures are expected to decrease by 1.3 percent of GDP. Combined revenues for the federal and provincial governments are estimated at 15.2 percent of GDP or Rs. 19.6 trillion.
Total spending by all tiers of government is projected at 20.3 percent of GDP or approximately Rs. 26.3 trillion. Defense is projected to stay at 2 percent of GDP, with at least an 18 percent increase over last year’s allocation.
The government plans to allocate Rs. 921 billion or 0.7 percent of GDP for development and Rs. 1.35 trillion or slightly more than 1 percent of GDP for subsidies, including Rs. 1.04 trillion or 0.8 percent of GDP for the power sector.
The overall budget deficit is projected at 5.1 percent of GDP or Rs. 6.6 trillion, down from 5.9 percent of GDP this year, although nearly unchanged in nominal terms.
Foreign direct investment is expected to remain unchanged at 0.6 percent of GDP in the next fiscal year. The IMF expects additional revenue through the enforcement of agricultural income tax and better compliance from under-taxed sectors.
It bears mentioning that on Friday, the IMF Executive Board approved a combined $2.4 billion financial package for Pakistan, including an immediate $1 billion disbursement and $1.4 billion in climate financing.