In discussion with the International Monetary Fund (IMF), Pakistan has reaffirmed its commitment to achieving a primary budget surplus of 2% of its gross domestic product (GDP) in fiscal year 2026-27, as well as maintain a tight monetary stance to anchor inflation rising after Middle East conflict.
Over the past week, from May 13-20, an IMF mission led by Iva Petrova was in Pakistan for a staff visit to deliberate on the country’s budget strategy and reform agenda under the ongoing Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF). In a statement, the lender confirmed the visit had concluded, adding it had focused on recent economic developments and reform implementation.
“We had constructive discussions with the authorities on recent economic developments, including the impact of ongoing disruptions from the conflict in the Middle East,” said Petrova. “The authorities reaffirmed their commitment to a primary surplus target of 2% of GDP in FY2027, which will support fiscal sustainability and continue to build resilience,” she continued.
“The envisaged gradual fiscal consolidation will be supported by efforts to broaden the tax base, improve tax administration, enhance spending efficiency and public financial management at both federal and provincial levels,” she said, adding discussions on the budget would continue in the coming days.
According to the Fund, the State Bank of Pakistan (SBP) reiterated its commitment to maintaining an appropriately tight monetary policy stance to anchor inflation expectations and “will continue to closely monitor potential second-round effects from energy price increases.” It reiterated that exchange rate flexibility should continue to serve as a key shock absorber, adding efforts should continue to build a deeper foreign exchange interbank market.
The IMF statement noted that discussions had also covered ongoing structural reforms, including in the energy sector and state-owned enterprises, product market liberalization, and financial sector reforms aimed at supporting durable growth and attracting high-quality private investment. It said progress under the RSF was also discussed, including efforts to adopt a disaster risk financing framework, integrate climate considerations into budget and investment planning, and advance power subsidy reforms.
Concluding the statement, the IMF mission thanked the federal and provincial authorities for their “constructive engagement, strong collaboration, and continued commitment to sound policies.” It said the next mission would take place in the second half of 2026, and would include the Article IV consultation and EFF and RSF reviews.
Tax and fiscal measures
According to finance ministry sources, both sides agreed to broad tax and fiscal measures worth Rs. 1.030 trillion at the federal and provincial levels during their discussions. They said the federal government had assured the lender it introduce tax measures worth Rs. 370 billion, and impose around Rs. 230 billion worth of new taxes in the next federal budget. Provincial governments separately committed to implementing additional tax and revenue measures worth Rs. 430 billion in FY27.
Officials said most issues between Pakistan and the IMF had been settled, though a few matters required additional data sharing before final approval of the budget framework.
The IMF has also demanded an increase in sales tax on solar panels, from 10-18%, effective from July 1, according to the sources. It has additionally proposed raising sales tax on electric vehicles from 1-18% from the start of the new fiscal year.
The sources said the IMF wants provincial governments to provide nearly Rs. 2 trillion in budget surpluses to support federal fiscal consolidation efforts. The Federal Board of Revenue (FBR) has also been assigned a tax collection target of Rs. 15.264 trillion for the next fiscal year, with the tax body’s target for the first half ending December 2026 has been set at Rs. 7.022 trillion.
Authorities are planning to generate an additional Rs. 95 billion through tax audits during the next fiscal year, while an estimated Rs. 50 billion in additional recoveries is expected from the sugar, cement, tobacco and fertilizer sectors.
The sources said the IMF has retained a condition requiring Pakistan to review gas and electricity tariffs twice annually under the reform program. It has also recommended against granting new tax exemptions for Special Economic Zones, while seeking the gradual withdrawal of incentives for Special Economic and Technology Zones by 2035.
In the energy sector, the IMF has reportedly sought an 18% increase in the petroleum levy target for the next fiscal year, asking Pakistan to raise an additional Rs. 262 billion through the levy in FY27. The country’s petroleum target for FY26 was Rs. 1.468 trillion, with the IMF seeking its increase to Rs. 1.730 trillion for FY27. Similarly, the IMF has reportedly demanded an increase in the climate support levy on petroleum products from Rs. 2.5/liter to Rs. 5/liter.