The International Monetary Fund (IMF) has raised Pakistan’s primary budget surplus target to 1.6% of GDP for the fiscal year 2025-26, up from 1% in the current fiscal year. The revised fiscal roadmap reflects a strategic pivot from aggressive taxation to tightening government spending.
As per the IMF’s updated fiscal framework, total revenues are expected to grow by 0.7% of GDP, while total expenditures are projected to shrink by 1.3% of GDP. Combined revenues from federal and provincial levels are estimated at 15.2% of GDP, or Rs. 19.6 trillion, whereas the total expenditure is forecast at 20.3% of GDP, or approximately Rs. 26.3 trillion.
Defense spending will remain at 2% of GDP, marking at least an 18% increase compared to last year’s allocation. Development spending is planned at Rs. 921 billion (0.7% of GDP), while subsidies are expected to total Rs. 1.35 trillion, with the power sector receiving Rs. 1.04 trillion.
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The overall budget deficit is projected to narrow slightly to 5.1% of GDP (Rs. 6.6 trillion), down from 5.9% this year. However, in nominal terms, the deficit remains largely unchanged.
Foreign direct investment is expected to stay flat at 0.6% of GDP for the coming fiscal year. Meanwhile, the IMF anticipates improved tax compliance, particularly through the enforcement of agricultural income tax and targeting under-taxed sectors, to boost revenues further.
In a significant development, the IMF Executive Board approved a $2.4 billion financial package for Pakistan on Friday. The package includes an immediate disbursement of $1 billion and $1.4 billion earmarked for climate resilience initiatives.
