IMF, Pakistan set key targets for budget 2025-26

ISLAMABAD: Pakistan‘s federal budget for 2025-26 is expected to be greater than PKR 17.6 trillion, and to collect PKR 14,307 billion in tax revenues by the Federal Board of Revenue (FBR).

The documents state that the discussions between Pakistan and the International Monetary Fund (IMF) are still underway, but significant fiscal targets have been agreed.

In the FBR revenue strategy, PKR 6,470 billion is expected from direct taxes, PKR 4,943 billion is expected from sales tax, PKR 1,741 billion from customs duty, and PKR 1,153 billion from federal excise duty.

The petroleum levy is expected to contribute PKR 1,311 billion and non-tax revenue of PKR 2,584 billion, assisted by a PKR 1,220 billion provincial surplus. All of this is intended to reduce the fiscal deficit to 5.9pc of GDP from 7.4pc of GDP in the year.

The expenditures include PKR 8,685 billion for debt servicing and apparent contribution for interest payments, and PKR 2,414 billion for defense. The federal government plans to allot PKR 1,065 billion in the Public Sector Development Programme (PSDP), with borrowing expected to be PKR 6,588 billion for the fiscal deficit.

The budget indicates Pakistan‘s willingness to follow the IMF-driven reforms, including raising the tax-to-GDP ratio by 0.9% (from 9.5% to 10.4%), and the prospect of economic stabilization is cautiously encouraging.

Previously, the IMF requested that Pakistan gradually move away from federal funding for provincial development projects in the Public Sector Development Programme. According to sources, the IMF formally made this request during virtual meetings with the provincial governments while discussing expenditure plans for the 2025-26 fiscal budget, where provinces were active participants.

The IMF supported this demand by asking provinces for resources and to stop relying on federal government funding or revenues; they suggested implementing an income tax on agricultural income above PKR 600,000 per year, starting July 1, 2025, will no longer be exempt.