By Staff Reporter
ISLAMABAD: Pakistan has postponed the presentation of its 2025-26 federal budget to June 10, a week later than the previously announced June 2, as the government grapples with unresolved fiscal negotiations with the International Monetary Fund, officials said on Friday.
The delay underscores the challenges Islamabad faces in aligning its economic policies with the lender’s conditions under an ongoing $7 billion loan program.
The finance ministry confirmed that the Economic Survey for fiscal year 2025, a comprehensive report on the economy’s performance, will be released on June 9, a day before the budget announcement. The survey will provide a snapshot of sectoral performance for the outgoing fiscal year, setting the stage for the government’s fiscal priorities.
Negotiations with the IMF, critical to shaping Pakistan’s fiscal framework, hit a roadblock on Thursday, the last scheduled day of discussions, local media reported. Talks resumed in the afternoon after a morning session but yielded no breakthrough.
The Pakistani delegation, led by the finance secretary and joined by the chairman of the Federal Board of Revenue (FBR) and senior officials, presented proposals aimed at easing economic pressures. These included measures to lighten the tax burden on salaried workers, reduce industrial tax rates to lower the cost of doing business, and curb both development and non-development spending.
The government also outlined plans to boost revenue, including a framework for agricultural income tax collection and strategies to enhance provincial revenues. Despite these efforts, the IMF and Pakistan remain at odds over next year’s fiscal targets, with discussions set to continue into next week.
“Eventually, the government will have to accommodate IMF’s input while finalising fiscal goals,” one official said. Pakistan is obligated to consult the IMF on its budget targets as part of the terms of the current loan program.
Staff-level mission concluded
The IMF said discussions on Pakistan’s fiscal year 2026 (FY26) budget will continue in the coming days, after a staff-level mission led by Nathan Porter concluded.
“We held constructive discussions with the authorities on their FY26 budget proposals and broader economic policy and reform agenda, supported by the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF),” Porter said in a statement.
Pakistani officials reaffirmed their commitment to fiscal consolidation while protecting social and priority spending, targeting a primary surplus of 1.6% of GDP for FY26.
The IMF statement highlighted revenue measures under discussion, including improved compliance and an expanded tax base, alongside prioritized expenditure.
The IMF and Pakistani officials also discussed power sector reforms to enhance financial viability and cut costs, as well as broader structural reforms to boost sustainable growth and level the business playing field.
Porter noted the government’s dedication to sound macroeconomic policies, emphasizing that a tight, data-driven monetary policy was vital to keep inflation within the State Bank of Pakistan’s 5-7% medium-term target.
The IMF stressed the need to rebuild foreign exchange reserves, maintain a fully functioning forex market, and allow greater exchange rate flexibility to strengthen external resilience.
Fiscal constraints
The delay comes as Pakistan faces mounting pressure to balance its fiscal ambitions with IMF-mandated discipline. On May 9, The News reported that the government had allocated Rs921 billion for development projects in the upcoming budget, well below the Rs1,600 billion deemed necessary by the Ministry of Planning. The shortfall highlights the tight fiscal space Islamabad is navigating amid demands for structural reforms and revenue enhancement.
The IMF, which approved a $1.4 billion loan under its climate resilience fund and the first review of the $7 billion program on May 9, has emphasised the need for sustained policy efforts. The review unlocked approximately $1 billion, bringing total disbursements under the 37-month program to $2 billion. “Pakistan’s policy efforts under the (program) have already delivered significant progress in stabilising the economy and rebuilding confidence, amidst a challenging global environment,” the IMF said in a statement at the time.
Pakistan’s economy has shown signs of stabilization since securing the IMF bailout, but challenges persist. The government’s proposals to ease taxes on salaried workers reflect efforts to address public discontent. The push to lower industrial tax rates signals an intent to spur economic activity, though analysts warn that revenue shortfalls could complicate these plans.
The focus on agricultural income tax and provincial revenue generation is part of a broader strategy to diversify revenue streams. Pakistan’s tax-to-GDP ratio, one of the lowest in the region, has been a sticking point in IMF negotiations, with the lender pressing for reforms to broaden the tax base.
IMF defends Pakistan funds
Meanwhile, the IMF defended its recent disbursement of funds to Pakistan under the Extended Fund Facility, brushing aside Indian concerns that the bailout could be misused by Islamabad.
The IMF has said Pakistan had “met all the targets” set under the program, with disbursements tightly controlled and directed solely to the reserves of the State Bank of Pakistan.
Speaking at a press briefing, IMF spokesperson Julie Kozack emphasised the rigor of the Fund’s oversight. “It is part of a standard procedure under programs that our Executive Board conducts periodic reviews of lending programs to assess their progress,” she said. “And in the case of Pakistan, our Board found that Pakistan had indeed met all of the targets. It had made progress on some of the reforms, and for that reason, the Board went ahead and approved the programme.”
The approval process followed a clear timeline. The IMF Executive Board greenlit Pakistan’s EFF program in September 2024, with the first review slated for early 2025. On March 25, 2025, IMF staff and Pakistani officials sealed a Staff-Level Agreement on the First Review, paving the way for the Executive Board’s final nod on May 9, 2025. That decision triggered the latest disbursement.
India’s unease over the funds has cast a shadow over the IMF’s move, with New Delhi hinting at potential diversion by Pakistan. Kozack, however, pointed to robust safeguards baked into the program. “The EFF disbursements, all of the disbursements received under the EFF, are allocated to the reserves of the central bank,” she said. “Those resources are not part of budget financing. They are not transferred to the government to support the budget.”
She elaborated on the checks in place: targets for building international reserves, a strict ban on central bank lending to the government, and extensive structural conditions to bolster fiscal discipline. “These conditions are all available in the programme documents,” Kozack noted. “Any deviation from the established program conditions would impact future reviews under the Pakistan programme.”
The IMF’s confidence in its process comes despite simmering tensions between Pakistan and India, spotlighted by recent military strikes on each other by both the countries.
Kozack addressed the strife briefly, saying, “We do hope for a peaceful resolution of the conflict,” while expressing “regrets and sympathies for the loss of life and the human toll.”
On the sidelines, questions arose about the role of the Indian Executive Director at the IMF. “The appointment of Executive Directors is a matter for the member country. It’s not a matter for the Fund, and it’s completely up to the country authorities to determine who represents them,” Kozack added.
The Fund’s decision-making, she added, hinges on consensus rather than public votes. “In general, Fund Board decisions are taken by consensus, and in this case, there was a sufficient consensus at the Board to allow us to move forward and complete Pakistan’s review,” she said.
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