By Staff Reporter
ISLAMABAD: The International Monetary Fund has set Pakistan’s federal revenue target for fiscal 2027 at Rs17.145 trillion — a 13.5% increase from the current year — backed by Rs430 billion in fresh budgetary and administrative measures and an 18% rise in the petroleum levy, according to its staff report on the completion of the third review under the $7 billion Extended Fund Facility and the second review under the $1.4 billion Resilience and Sustainability Facility.
The targets, which must be incorporated into the federal and provincial budgets to be presented to parliament early next month, come after Pakistan cleared three major prior actions to secure the release of $1.3 billion in combined disbursements. Those steps included cutting provincial grants by Rs136 billion, securing Rs322 billion in tax recoveries from favorable court rulings on the super tax, and fully passing through fuel prices after an initial delay linked to the U.S.-Iran conflict.
The Federal Board of Revenue is expected to collect Rs15.264 trillion next year, up Rs1.836 trillion or 13.7% from fiscal 2026. Roughly half that amount — Rs7.022 trillion — is due by December 2026. The IMF anticipates only about 12% organic growth from 8.4% average inflation and 3.5% real GDP expansion, with the balance coming from tax audits, better sales-tax liability monitoring, and enforcement drives in sugar, cement, tobacco and fertiliser. The government has committed Rs95 billion from audits, Rs50 billion from sales-tax improvements and Rs50 billion from sector-specific gap closures.
The petroleum levy, already on track to overshoot this year’s Rs1.468 trillion target by nearly Rs80 billion to Rs1.55 trillion, is budgeted to climb to Rs1.73 trillion in fiscal 2027. That implies an average rate approaching Rs100 per liter, a level never before tested amid Pakistan’s consumption patterns. Four provinces have pledged almost matching additional revenue of Rs430 billion, lifting their total collections to Rs1.95 trillion from Rs1.264 trillion expected this year. The gains are to come mainly from higher general sales tax on services and agricultural income tax. In return, the provinces will surrender a cash surplus equivalent to 1.4% of GDP — 0.3 percentage point more than in fiscal 2026 — or roughly Rs2 trillion, up from Rs1.46 trillion.
Expenditure and Subsidy Discipline
On the spending side, the IMF projects defence outlays rising Rs100 billion to Rs2.665 trillion. The federal Public Sector Development Programme is budgeted at Rs986 billion, up from Rs873 billion, while provincial development spending climbs to Rs2.5 trillion from Rs2.1 trillion. Interest payments are seen at Rs7.8 trillion, from Rs7.3 trillion this year.
Power subsidies are capped at Rs830 billion, or 0.6% of GDP, more than Rs200 billion below the current year’s Rs1.036 trillion, after the government committed to timely biannual tariff adjustments in gas and annual rebasing in power to achieve full cost recovery. Subsidies for low-income households will shift to the Benazir Income Support Programme — raised to Rs18,000 per family from Rs14,500 — using the National Socio-Economic Registry rather than blanket billing relief. The power-sector circular debt flow is targeted to shrink by Rs300 billion to net zero by the end of fiscal 2027. The government also pledged to settle disputes with K-Electric by September and finalise a national sugar policy by end-June to exit commodity operations.
Additional structural commitments include clearing a new automobile policy with the IMF before cabinet approval by end-June, legislating National Accountability Bureau autonomy by January 2027, identifying 10 corruption-prone institutions for audit by year-end, and strengthening provincial anti-corruption bodies. The government promised no new incentives for special economic zones, export processing zones or technology zones, and to phase out existing ones by 2035. It will also reduce intervention in wheat and sugar markets, improve strategic wheat-reserve procurement through the private sector at market-aligned prices, and limit releases to declared emergencies.
Digitalisation of all federal and provincial payments is due by June 2027, and combined federal-provincial social spending will rise by 0.2 percentage points of GDP to Rs4.227 trillion.
War in Middle East Clouds Outlook
The IMF’s updated baseline, aligned with the April 2026 World Economic Outlook, shows the Middle East conflict shaving 0.2 percentage point from fiscal 2026 GDP growth and 0.6 point from fiscal 2027. Consumer-price inflation is projected to rise by half a percentage point this year and 1.5 points next, mostly through energy pass-through, while the current-account deficit widens by 0.2 point of GDP in fiscal 2026 and 0.4 point in 2027.
GDP growth is forecast at 3.6% for the current fiscal year but will be revised lower for 2027 because of higher commodity prices and softer external demand. Headline inflation is expected to exceed 10% in the fourth quarter of fiscal 2026 before averaging 8.4% for the full fiscal 2027 year, returning to the State Bank of Pakistan’s target range in fiscal 2028. The current account is seen posting a small deficit this year before widening further in 2027, though compressed non-oil imports will cushion the blow.
Downside risks are “significant,” the report said: escalation in the Middle East, commodity volatility, tighter global financial conditions, weaker remittances from GCC economies (which supply 55% of Pakistan’s inflows), and rising protectionism. An adverse scenario could cut cumulative GDP by 1.5 percentage points by fiscal 2027, lift inflation by an additional 2.5 points and widen the current-account deficit by 1.5 percentage points of GDP.
Public debt remains sustainable over the medium term under the baseline, but gross financing needs stay large. External financing requirements for fiscal 2027 are estimated at $21.2 billion against $21.9 billion in available bilateral, multilateral and market funding. The IMF mission is in Islamabad this week to fine-tune the numbers before the budget is presented. Pakistan’s economy, the fund noted, remains highly exposed to Middle East spillovers, with 81% of fuel imports coming from the Gulf. Any prolonged physical disruption to supplies would amplify the impact beyond price effects alone.
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