Islamabad, May 11, 2025: The International Monetary Fund (IMF) has raised Pakistan’s primary budget surplus target to 1.6% of GDP for FY2025-26, an increase from this year’s 1%.
This new goal signals a shift in fiscal policy, with a greater emphasis on stringent expenditure control rather than tax hikes.
Under the IMF’s updated fiscal framework, Pakistan is expected to see a modest rise in total revenue by 0.7% of GDP, while government spending is projected to shrink by 1.3% of GDP.
Federal and provincial revenues combined are anticipated to reach 15.2% of GDP, equating to Rs. 19.6 trillion, whereas total government expenditure is projected at 20.3% of GDP, or Rs. 26.3 trillion.
The defense budget is expected to remain at 2% of GDP, with a notable increase of at least 18% compared to last year’s allocation.
Meanwhile, the government plans to allocate Rs. 921 billion (0.7% of GDP) for development and Rs. 1.35 trillion (just over 1% of GDP) for subsidies, including Rs. 1.04 trillion (0.8% of GDP) for the power sector.
Despite efforts to curb the deficit, Pakistan’s overall budget shortfall is forecasted at 5.1% of GDP, or Rs. 6.6 trillion—slightly improved from the previous year’s 5.9% of GDP, but remaining relatively stable in nominal terms.
The IMF has also set expectations for foreign direct investment (FDI) to remain unchanged at 0.6% of GDP in the upcoming fiscal year.
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Additional revenue is anticipated through improved agricultural income tax enforcement and enhanced compliance from sectors that have historically been under-taxed.
In a positive development, the IMF Executive Board recently approved a combined $2.4 billion financial package for Pakistan, which includes an immediate $1 billion disbursement and $1.4 billion allocated for climate financing.
