• Both sides to continue discussions on revenue, defence, development, tariff reforms
• Next review likely in second half of 2025
• Mission thanks federal, provincial authorities for constructive engagement

ISLAMABAD: In a significant development, the International Monetary Fund (IMF) and Pakistani authorities have reached a preliminary agreement on a comprehensive financial framework, paving the way for continued negotiations on the budget for fiscal year 2025-26.

Officials in the finance ministry indicate that discussions are set to advance in the coming days, with the goal of finalising crucial fiscal policies, including the revenue collection target for FY26, development outlay, defence expenditure, and the highly debated tariff rationalisation plan for the industry.

The areas where agreements remain pending include tax concessions for the salaried class, an increase in defence budget and policies related to real estate. The discussions will also focus on reducing expenditures, as well as continuing reforms, including the privatisation of state-owned enterprises.

According to an IMF announcement, the Fund mission, led by Nathan Porter, has concluded its staff visit to Islamabad. The staff visit focused on recent economic developments, programme implementation and the budget strategy for FY26.

The IMF delegation arrived in Islamabad on May 19 to review Pakistan’s recent economic developments, assess progress under the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF), and initiate discussions on the next federal budget.

“We held constructive discussions with the authorities on their FY26 budget proposals and broader economic policy and reform agenda, supported by the 2024 EFF and the 2025 RSF,” Mr Nathan said.

The next mission, associated with the upcoming EFF and RSF reviews, is expected in the second half of 2025.

Finance ministry officials reaffirmed their commitment to fiscal consolidation while safeguarding social and priority expenditures, aiming for a primary surplus of 1.6 per cent of gross domestic product in FY26.

It was stated that during the mission visit, discussions focused on actions to enhance revenue — including bolstering compliance and expanding the tax base — and on prioritising expenditures.

The Federal Board of Revenue (FBR) is facing significant shortfalls in the current fiscal year.

“We will discuss a realistic revenue target for the FBR while keeping in view real GDP growth and inflation,” tax officials said, adding that next year’s target will be based on actual revenue potential rather than setting an unrealistic goal.

“We will continue discussions towards agreeing on the authorities’ FY26 budget over the coming days,” Mr Nathan said.

He added that the discussions also covered ongoing energy sector reforms aimed at improving financial viability and reducing the high-cost structure of Pakistan’s power sector, along with other structural reforms to foster sustainable growth and promote a more level playing field for business and investment.

Mr Nathan also said that Pakistani authorities emphasised their commitment to ensuring sound macroeconomic policymaking and building financial buffers. In this context, maintaining an appropriately tight and data-dependent monetary policy remains a priority to anchor inflation within the central bank’s medium-term target range of 5-7pc.

At the same time, rebuilding foreign exchange reserves, preserving a fully functioning forex market, and allowing for greater exchange rate flexibility are considered critical to strengthening resilience against external shocks.

The mission thanked the federal and provincial authorities for their hospitality, constructive discussions and strong collaboration and commitment to sound policies. The announcement said the IMF team will remain engaged and continue its close dialogue with the authorities.

Published in Dawn, May 25th, 2025