IMF and Pakistan: Navigating Budget Talks and Economic Reforms

The IMF engaged in crucial discussions with Pakistan on the FY 2025-26 budget, emphasizing revenue enhancement and expenditure priorities. Talks included energy sector reforms and commitment to fiscal consolidation. The IMF stressed maintaining tight monetary policy and rebuilding forex reserves. Future EFF and RSF reviews are planned for 2025.

The International Monetary Fund (IMF) announced on Saturday that it engaged in constructive discussions with Pakistani officials about the forthcoming budget, committing to ongoing talks in the coming days.

The IMF delegation began high-level policy discussions in Islamabad on May 19 to deliberate on the FY 2025-26 budget, which, despite extensive talks, remained unresolved, prompting the government to postpone the budget announcement until June 10.

Nathan Porter, the IMF's mission chief, stated, "We had fruitful talks with the authorities on their FY2026 budget proposals and broader economic policies, supported by the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF). We will continue discussions to finalise the authorities' FY26 budget in the coming days."

During these discussions, focus areas included enhancing tax revenue by broadening the tax base and prioritising expenditure. The Pakistani authorities reiterated their commitment to fiscal consolidation, aiming for a primary surplus of 1.6% of GDP in FY2026 while safeguarding essential social expenditures.

Talks also covered ongoing energy sector reforms to improve financial viability and reduce costs in Pakistan's power sector, alongside other structural reforms aimed at sustainable growth and a favorable business and investment climate.

The government underscored its dedication to "ensuring sound macroeconomic policy-making and building resilience." Maintaining a tight, data-driven monetary policy to anchor inflation within a 5–7% range remains a priority, Porter emphasized.

Other critical areas included rebuilding foreign exchange reserves, ensuring a functional FX market, and allowing greater exchange rate flexibility to enhance resilience to external shocks. The IMF anticipates its next mission for EFF and RSF reviews in the latter half of 2025.

Following a USD 7 billion EFF loan agreement last year, Pakistan has received two tranches of funding, with the latest installment just this month. Despite India's concerns over potential misuse of funds, the IMF's board approved the assistance.

(With inputs from agencies.)