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• 2pc primary surplus target for FY27 to remain central to budget plan
• IMF mission concludes May 13-20 visit; budget talks with Fund to continue virtually
• Federal, provincial govts expected to raise over Rs860bn additional revenue
• FBR target projected at Rs15.264tr
ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have agreed to maintain a tight monetary policy stance and treat the primary budget surplus target of two per cent of GDP as sacrosanct to build resilience through continued fiscal and monetary consolidation and broadening of the tax base.
However, the two sides have yet to conclude talks on the finalisation of the 2026-27 budget, and discussions are expected to continue virtually over the next couple of days.
“The authorities reaffirmed their commitment to a primary surplus target of 2pc of GDP in FY2027, which will support fiscal sustainability and continue to build resilience,” the IMF said in a statement after its staff mission, led by Iva Petrova, concluded its May 13-20 visit to Islamabad.
“The envisaged gradual fiscal consolidation will be supported by efforts to broaden the tax base, improve tax administration, enhance spending efficiency and public financial management at both federal and provincial levels,” it said.
The staff visit focused on recent economic developments, reform implementation and the budget strategy for FY27.
The IMF said the two sides had “constructive discussions” on recent economic developments, including the impact of ongoing disruptions from the conflict in the Middle East, the FY27 budget formulation and progress on the reform agenda under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF).
The IMF said the State Bank of Pakistan had also “reiterated its commitment to maintaining an appropriately tight monetary policy stance to anchor inflation expectations and will continue to closely monitor potential second-round effects from energy price increases”.
Furthermore, exchange rate flexibility should continue to serve as a key shock absorber, while efforts should continue to build a deeper foreign exchange interbank market, the statement said.
While the Ministry of Finance remained silent on the talks, the IMF said discussions also covered ongoing structural reforms, including in the energy sector and state-owned enterprises, product market liberalisation in wheat and sugar, and financial sector reforms aimed at supporting durable growth and attracting high-quality private investment.
The IMF appreciated the strong collaboration between the federal and provincial governments and their continued commitment to sound policies. It said the next mission, expected to include the Article IV consultation and EFF and RSF reviews, would take place in the second half of 2026.
Based on prior commitments by the government, the IMF expects federal and provincial authorities to raise Rs430 billion each in incremental revenue (over Rs860bn cumulatively) under the FY27 budget and increase petroleum levy collection by 18pc.
Total federal revenues for FY27 are estimated at Rs17.144 trillion, over Rs2.03tr higher than the current fiscal year, showing an increase of 13.5pc. The government will also increase Benazir Income Support Programme support to Rs18,000 per family in the coming budget compared to Rs14,500 at present.
The additional revenue measures will take total provincial revenues to Rs1.95tr next year against Rs1.264tr expected this year.
The provinces have committed to achieving these targets through improved collection from GST on services and agricultural income tax.
They would then surrender a cash surplus equivalent to 1.4pc of GDP — 0.3pc higher than the current fiscal year — to the Centre to ensure a 2pc primary surplus and a 3.5pc budget deficit next year. This would work out to nearly Rs2tr compared to Rs1.46tr provincial surplus in the current year.
The Federal Board of Revenue’s revenue target has been projected at Rs15.264tr for the next fiscal year, about 13.7pc or Rs1.836tr higher than the current fiscal year.
Under this projection, the FBR’s half-year target ending December 2026 has been separately set at Rs7.022tr. This means the IMF expects about 12pc organic revenue growth based on its estimate of 8.4pc average inflation and 3.5pc economic growth, with the remaining increase coming through budgetary, administrative and digital reforms and enforcement measures.
Defence expenditure is estimated to be Rs100bn higher next year at Rs2.665tr compared to Rs2.564tr this year.
The federal development programme for next year is projected at Rs986bn compared to Rs873bn during the current year, notwithstanding major budget announcements by the government. Provincial development budgets are estimated at Rs2.5tr next year compared to Rs2.1tr in the current year. Interest payments for next year are projected at Rs7.8tr compared to Rs7.3tr this year.
The IMF has estimated next year’s external financing needs at $21.2bn and projected available financing at $21.9bn from bilateral, multilateral and capital market lenders. Power sector subsidies have been capped at Rs830bn, or 0.6pc of GDP, for next year, which is more than Rs200bn lower than Rs1.036tr in the current fiscal year.
Published in Dawn, May 22nd, 2026
