The government has pushed back the unveiling of the next fiscal year’s budget by just over a week, rescheduling it to June 10. This delay appears to be due to ongoing disagreements with the IMF over certain spending plans that the lender fears could derail the progress of its $7bn financial support program.
The government, however, sees these contested expenditures as essential for easing the financial strain on the middle class—facing high taxes and rising living costs—and for bolstering Pakistan’s military capabilities against India. After several rounds of inconclusive talks on the upcoming budget, the IMF mission has left the country, agreeing to continue discussions virtually over the coming week.
In a statement after its visit, the IMF described the talks with Pakistani officials as constructive, covering the “budget proposals and broader economic policy, and reform agenda” under the 2024 Extended Fund Facility and the 2025 Resilience and Sustainability Facility. The IMF noted that the authorities had reaffirmed their dedication to fiscal consolidation while still protecting social and priority spending, aiming for a primary surplus of 1.6% of GDP in the next fiscal year. The discussions centered on boosting revenue—by broadening the tax base and improving compliance—and prioritizing expenditure.
The disagreements over increased defence allocations in response to India’s aggression and tax relief for salaried workers are not unusual. In the past, both sides have clashed over fiscal policies but managed to reach compromises. The IMF mission head’s statement doesn’t suggest any significant divergence on the budget’s core proposals.
It seems likely the IMF wants the government to introduce additional revenue measures to offset the budgetary impact of tax relief and higher defence spending. For the government, it is crucial to maintain sound macroeconomic policies and fiscal discipline to safeguard the fragile economic recovery, which is vulnerable to setbacks from, for example, the real estate sector’s push for tax concessions or external shocks.
The government is under intense political pressure from various social and industrial groups to offer relief and boost economic growth. This pressure is likely to intensify, making it harder for the political leadership to resist the urge to create an illusion of well-being in the country.
The key question is whether the government can break away from the IMF’s demands. At present, it cannot afford to do so. With the country relying heavily on multilateral loans and friendly nations’ rollovers, Pakistan is at a critical juncture and must carefully evaluate each decision.
