The early round of technical-level talks between Pakistan and the International Monetary Fund (IMF) on the upcoming budget makes one thing clear: fiscal discipline will remain non-negotiable under the $7bn financing facility. The IMF’s insistence on a tight fiscal policy is not surprising, given Pakistan’s long-standing dependency on external bailouts. It reflects a growing global concern over the country’s debt sustainability, which is increasingly being tied to credible and consistent economic reform.
Media reports from these discussions outline the IMF’s expectations: a modest GDP growth of 3.6%, average inflation at 7.7%, and a combined federal-provincial revenue target of nearly Rs20 trillion — equivalent to 15.2% of GDP. These projections are accompanied by the expectation of curbed spending, aimed at bringing down the budget deficit from an estimated 5.6% to 5.1% of GDP. Moreover, the IMF is pushing for an increase in the primary budget surplus from 1% to 1.6% to ensure sustainable debt servicing and a marginal reduction in the debt-to-GDP ratio from 77.6% to 75.6% in the next fiscal year.
Another noteworthy aspect of the upcoming budget is its alignment with climate financing goals. The IMF has committed $1.4bn over the next 28 months under its climate-related funding facility. For Pakistan, this is an opportunity to integrate climate adaptation and mitigation strategies into its broader economic planning.
Data suggests that Pakistan is on track to meet this year’s budgetary and structural reform benchmarks, largely due to improved provincial coordination. However, a major challenge remains: the persistent shortfall in tax revenues. The ambitious revenue targets for the next fiscal year cannot be met without a serious effort to expand the tax base. This includes effectively taxing the retail, real estate, and agricultural sectors — areas that have long evaded proper documentation and regulation. Achieving this requires political will and cooperation across federal and provincial lines.
Encouragingly, the government’s recent actions — such as exiting the wheat procurement market despite pressure from influential rural groups, and reducing subsidies for powerful industrial lobbies — indicate a willingness to make hard decisions. These steps, though unpopular, are essential for long-term economic stability.
Continuing to burden the salaried class and documented businesses, while leaving vast segments of the economy untaxed, is both unjust and unsustainable. A fairer and more efficient tax system is vital, not only for fiscal stability but also to free up resources for infrastructure and human development. With the budget fast approaching, the government must prioritize reform over rhetoric — for the sake of both economic survival and national sovereignty.
