ISLAMABAD: The International Monetary Fund (IMF) has forecast a gradual improvement in Pakistan’s fiscal indicators over the next five years, including a lower fiscal deficit and a reduced debt-to-GDP ratio. However, it has also warned of persistent revenue shortfalls and rising pension and health expenditures.

In its Fiscal Monitor 2025, released on the sidelines of the IMF-World Bank annual meetings, the estimate for Pakistan’s fiscal deficit — the gap between the country’s total resources and expenditures — for the current financial year is 4.1 per cent of GDP, down from 5.3pc last year but slightly higher than the government’s budget target of 3.9pc.

The IMF advised resisting spending pressures — whether on defence, infrastructure, or subsidies aimed at competitiveness — and urged addressing persistent resistance to taxation to build fiscal buffers and reduce rising debt ratios. Subject to this course, it projected the fiscal deficit to decline to 3.9pc of GDP next year, 3.3pc in FY28, 3.1pc in FY29, and 2.8pc in FY30.

Likewise, the IMF estimated Pakistan’s primary balance — the gap between revenues and expenditures, excluding interest payments — for the current fiscal year at 2.5pc of GDP, up from 2.4pc last year. For next year, the IMF estimated the primary balance coming down to 2pc of GDP and then staying stable there over the following three years.

Sees debt-to-GDP ratio to decline from 71.6pc to 60.2pc by FY30

Understandably on the back of massive taxation measures dictated by it in the last two budgets under $7bn bailout, the IMF estimated the general government revenues to have surged by three percentage points in FY25 to 15.7pc from 12.7pc in FY24 and then further go up to 16.2pc in the current year, up another 0.5pc of GDP.

It, however, forecasts a decline in the tax-to-GDP ratio to 15.7pc next year, followed by improvement and stability at 15.9pc of GDP over the subsequent three years, i.e., 2028-2030.

The general government expenditure, on the other hand, has also been forecast at 20.4pc of GDP during the current fiscal year, down from 21.1pc last year, apparently due to lower debt repayment costs amid falling interest rates. The IMF anticipated that government expenditure would decrease to 19.6pc of GDP next year and 19.2pc in FY28, followed by 19pc in FY29 and 18.8pc in FY30.

On the other hand, the fund said Pakistan’s debt-to-GDP ratio increased by 1.2 percentage points to 71.6pc in FY25 from 70.4pc in FY24. It forecast the debt ratio to maintain a declining path with a combined impact of over 10pc fall until 2030. It stated that the debt-to-GDP ratio would slightly decrease to 71.3pc of GDP during the current fiscal year and then fall significantly to 69.2pc next fiscal year. It forecasts the debt-to-GDP ratio falling again by 3 percentage points to 66.2 percentage points in FY28, 63.1 percentage points in FY29, and further to 60.2 percentage points in FY30 — still higher than the 60 percentage points limit under the law, which successive governments have continuously breached for more than 16 years.

The IMF also warned that Pakistan’s pension spending would rise by 0.1pc of GDP by 2030 despite recent reforms announced by the government and while net present value of pension spending would surge by 6.2pc of GDP by 2050.

Published in Dawn, October 17th, 2025