ISLAMABAD: Pakistan’s upcoming federal budget for fiscal year 2026-27 is expected to introduce stringent fiscal measures as the government works closely with the International Monetary Fund (IMF) to meet economic reform commitments under the ongoing $7 billion bailout programme.
The IMF concluded its mission to Pakistan from May 13 to May 20, focusing on recent economic developments, reform implementation, and the government’s budget strategy for FY2026-27. Economic experts believe discussions between Pakistani authorities and IMF officials have largely finalized key revenue and expenditure targets for the upcoming budget, which is expected to be presented in the National Assembly on June 5, 2026.
Unlike previous missions focused on programme reviews, the latest IMF visit was aimed primarily at assessing and approving the government’s budget framework. Analysts view the exercise as a critical precondition for the continuation of IMF support under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF).
According to the IMF, Pakistan remains committed to achieving a primary budget surplus of 2 percent of GDP in FY2026-27. This follows a projected primary surplus of 3.4 percent during the current fiscal year, slightly below the programme target of 3.5 percent. However, economists note that underlying fiscal figures exclude several major one-off transactions, including the government’s Rs1.25 trillion borrowing to address the power sector’s circular debt and proceeds from the privatization of Pakistan International Airlines (PIA).
The IMF-backed fiscal strategy places significant emphasis on increasing tax revenues and improving fiscal sustainability. Key measures under consideration include reducing sales tax exemptions, strengthening tax compliance through enhanced audit activity by the Federal Board of Revenue (FBR), and increasing provincial revenue collection through effective implementation of agricultural income tax reforms.
Experts warn that reducing tax exemptions and broadening the sales tax base could increase the tax burden on consumers, particularly lower-income households, as indirect taxes tend to have a greater impact on everyday spending.
The IMF has also stressed the importance of maintaining a tight monetary policy stance to control inflation and manage economic risks. The State Bank of Pakistan (SBP) has reiterated its commitment to monitoring inflationary pressures, especially those arising from energy price adjustments and global supply disruptions.
Economic uncertainty linked to ongoing tensions in the Middle East continues to pose inflation risks for Pakistan and other energy-importing countries. Analysts caution that interest rates may remain elevated or increase further if inflationary pressures persist, potentially raising government debt servicing costs and limiting private sector borrowing and investment.
Higher financing costs could also slow economic growth and job creation, adding further challenges for businesses and households already facing rising living expenses.
While the full details of the federal budget will become clear upon its presentation in Parliament, early indications suggest that taxpayers and consumers may face additional fiscal measures aimed at meeting IMF targets and strengthening government revenues. Businesses, salaried individuals, and consumers will be closely watching the budget announcements for potential tax changes that could significantly affect household budgets and economic activity during the next fiscal year.
