ISLAMABAD – As technical-level discussions on Pakistan’s federal budget kick off virtually, the International Monetary Fund (IMF) anticipates the country’s total revenue to reach nearly Rs20 trillion in the next fiscal year, up from the current estimate of under Rs17.8 trillion. The IMF is emphasizing stricter expenditure management to ensure sustainable debt servicing.
Following three days of video conference technical talks, formal policy-level negotiations are scheduled to begin on Monday, May 19, and continue through May 23. These discussions will finalize budgetary measures and the macroeconomic framework, paving the way for the federal budget announcement on June 2.
The IMF has outlined its key economic forecasts, projecting a GDP growth rate of 3.6% and an average inflation rate of 7.7%, which is notably higher than the current year’s 5.1%. This combination of growth and inflation is expected to boost revenue collection by over Rs1.4 trillion, compared to this year’s estimated Rs12.4 trillion.
While the Federal Board of Revenue (FBR) will remain a primary source of revenue, increased contributions from provincial governments and enhanced agricultural income tax collection are expected to expand the overall tax base.
Total revenues for the upcoming year are targeted to exceed Rs19.9 trillion, or 15.2% of GDP, compared to the current year’s Rs17.8 trillion estimate, which stands at 15.9% of GDP.
The IMF also expects the government to maintain tight control over expenditures, aiming to reduce them from 21.6% of GDP this year to 20.3% next year. Despite this, total expenditures are projected to rise to around Rs26.57 trillion, up from this year’s budgeted Rs18.9 trillion. Final figures for revenue and expenditure are still being negotiated, especially considering new costs related to the country’s security situation.
The fiscal deficit is targeted to decline from 5.6% of GDP this year to 5.1% next year, approximately Rs6.67 trillion. Additionally, the government is expected to maintain a primary surplus (revenues minus non-interest expenditures) of about Rs2.1 trillion, a crucial measure for improving debt sustainability. Meeting this target is projected to reduce Pakistan’s debt-to-GDP ratio from 77.6% to 75.6% by fiscal year 2026.
In line with environmental commitments, the Ministry of Finance has requested all ministries and divisions to submit an additional pro forma (Form-III-C) to better track climate-related components within subsidies. This “climate tagging” is part of the conditions under the Extended Fund Facility (EFF) agreement with the IMF.
The upcoming budget will categorize climate-relevant expenditures into adaptation, mitigation, and transition efforts. While climate tagging has been applied to public expenditure for civil government operations and development programs, it is now being extended to grants and subsidies to fully identify climate-related public spending.
