As Pakistan prepares to unveil its federal budget on June 10, the government finds itself walking a tightrope between populist temptations and economic imperatives. With the International Monetary Fund (IMF) keeping a watchful eye on Islamabad’s fiscal decisions, any attempt to introduce tax relief for the middle class or concessions for powerful lobbies like real estate must first pass through the Fund’s filter. Despite the government’s overtures, the IMF remains unconvinced.
The delay in the budget announcement—pushed back more than a week—was not without reason. It followed the departure of the IMF mission from Pakistan without concluding policy discussions on the upcoming budget. The primary points of contention: the government’s proposed increase in defence spending and its push to provide tax relief in a bid to curry favor with the electorate. The timing of these proposals—coinciding with a recent military success against India—suggests a desire to convert nationalistic pride into political capital. However, this sentiment alone cannot finance a budget.
The IMF, in a carefully worded statement, made its reservations public. It emphasized the need to enhance revenue generation, expand the tax base, and prioritise spending. These are not new demands but reflect longstanding concerns about Pakistan’s fiscal discipline. The Fund’s central worry is the government’s ability—or inability—to maintain the agreed-upon primary budget surplus of 1.6% of GDP. This surplus is crucial to reducing public debt and ensuring macroeconomic stability.
More alarming is the Federal Board of Revenue’s (FBR) performance. A tax collection shortfall of over Rs1 trillion in the first 11 months of the fiscal year paints a grim picture. This failure comes despite the imposition of record-high taxes and the freezing of refunds. Recognizing the FBR’s struggle, the IMF has already revised the full-year collection target downward by Rs640 billion. Yet, even this revised target seems ambitious given the current trajectory.
It is clear that the government’s desire to offer fiscal relief is at odds with its obligations under the IMF programme. Without identifying credible alternative revenue streams, any such populist move risks derailing the fragile economic recovery. The ongoing virtual talks between Islamabad and the IMF may yet produce a compromise, but time is running out.
The stakes are high. The government must resist the urge to indulge in pre-election fiscal extravagance. Pakistan’s economic credibility—and future access to external financing—depends on strict adherence to reform commitments. Fiscal discipline, not political theatrics, is the need of the hour.
