ISLAMABAD: The International Monetary Fund (IMF) has advised the gradual elimination of burdensome fuel subsidies, the tackling of contingent liabilities, and the expansion of the tax base to ensure credible medium-term fiscal sustainability.
In its twice-a-year Fiscal Monitor 2026, the fund projects Pakistan’s fiscal deficit to remain stable at around 3.2 per cent of GDP and primary surplus at 2.5pc.
The IMF projected the country’s revenue to have already peaked with a downward but stable outlook in the medium term ending 2031. This would thus lower public debt, yet, significantly higher than required under the Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005, the IMF anticipated government expenditures would remain stubborn. The fund projected a fiscal deficit at 3.2pc of GDP in 2025-26 and next year, down from 5.4pc in FY25, and then declining to 3pc and 2.8pc for FY28 and FY29, respectively. It forecast fiscal deficit rising again to 3.6pc in FY30 and even higher at 4.6pc in FY31.
The fiscal monitor expected Pakistan’s primary balance, the gap between total revenues and expenditures minus interest payments, to peak at 2.5pc in FY26 against 2.4pc of GDP last year. It would decline to 2pc next year and remain stable over the following two fiscal years before falling sharply to 1pc of GDP in FY30 and to an almost negligible 0.1pc in FY31.
Eyes fiscal sustainability, tax base expansion
The fund estimated government revenue unchanged at 15.8pc of GDP this year, then falling to 15.3pc next year. It anticipated general government revenues to remain stable at 15.5pc of GDP over the subsequent four fiscal years.
Chiefly because of lower debt-servicing costs following a fall in interest rates from a record 22pc to less than half, the IMF projected general government expenditure falling by more than two percentage points to 19pc in FY26 and further rationalising to 18.5pc over the following two fiscal years.
The fund projected the expenditure rising to 20pc of GDP by 2031. The fiscal monitor also put Pakistan’s gross government debt at 70.1pc of GDP for the current fiscal year, down from 72.8pc last year. Going forward, it projected gross government debt to steadily decline from 67.1pc in FY27 to 64pc in FY28, 60.8pc in FY29, 59pc in FY30, and 58.2pc by FY31.
Likewise, the net government debt has been estimated at 64.4pc during the current year, down from 66.5pc last year. The net government debt would also maintain its declining trend over the subsequent four years from 62.1pc in FY27 to 55pc by FY31.
Regarding global financial stability, the IMF warned that risks were elevated as the financial system was confronting the ongoing war in the Middle East, potential inflationary pressures, rising risks of further tightening in financial conditions, and several channels through which market turmoil could escalate into financial instability. Markets have corrected in an orderly manner so far, but risks are asymmetric, it said, noting that “the longer the conflict continues, the greater the risk that global financial conditions — which had been very accommodative before the war —could tighten further and more abruptly”.
Since February, global equity prices have declined by 8pc, after being boosted by strong corporate profits in the months before. The war in the Middle East threatens to reinforce adverse financial and commodity price dynamics — through higher global interest rates, dollar appreciation, and energy price surges — exacerbating macroeconomic pressures in emerging market and developing economies.
It said the fiscal outlook had deteriorated further since the April 2025 Fiscal Monitor. “Global debt-at-risk three years ahead now stands near 117pc of GDP, with a gap of roughly 20 percentage points between the median projection and the right tail, underscoring heightened downside risks. Several reinforcing forces could weigh on the fiscal outlook.
The conflict in the Middle East could further strain government finances through higher food and fuel prices, tighter financial conditions, lower activity, and rising defence outlays. In a prolonged conflict scenario, global debt-at-risk could increase by an additional 4 percentage points.
Published in Dawn, April 16th, 2026