Pakistan and IMF Reach Preliminary Agreement on 2025–26 Budget

Pakistan-and-IMF-Reach-Preliminary-Agreement-on-2025-26-Budget

In a crucial move towards economic stabilization, Pakistan and the International Monetary Fund (IMF) have reached a preliminary agreement on the fiscal framework for the 2025–26 budget. This agreement is part of Pakistan's broader strategy to implement structural reforms and ensure continued support under the IMF's Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF).

Constructive Discussions and Key Fiscal Targets

The IMF's staff mission, led by Nathan Porter, concluded its visit to Islamabad on May 24, 2025, after engaging in constructive discussions with Pakistani authorities. The talks focused on aligning Pakistan's fiscal policies with the IMF's objectives, including reducing the fiscal deficit and achieving a primary budget surplus. Specifically, Pakistan aims to reduce its fiscal deficit from 5.6% of GDP in the current year to 5.1% in the next fiscal year and maintain a primary surplus of around 1.6% of GDP.

Emphasis on Revenue Mobilization and Expenditure Control

A significant aspect of the agreement involves enhancing revenue collection and controlling expenditures. The IMF has recommended broadening the tax base, including implementing taxes on agricultural income, to increase revenue. Additionally, the IMF has advised reducing subsidies and improving the efficiency of public spending to ensure fiscal discipline.

Upcoming Budget Presentation and IMF Review

The Pakistani government has announced that it will present the federal budget for the fiscal year 2025–26 on June 10, 2025. This presentation will be crucial in demonstrating Pakistan's commitment to the agreed-upon fiscal targets and reforms. The IMF has scheduled its next review of Pakistan's funding program for the second half of 2025, during which it will assess the country's adherence to the agreed fiscal framework and progress on structural reforms.

Implications for Pakistan's Economic Stability

The preliminary agreement with the IMF is a positive development for Pakistan's economy, signaling international confidence in the country's reform agenda. Successful implementation of the agreed fiscal measures is expected to enhance macroeconomic stability, attract foreign investment, and promote sustainable economic growth. However, the government faces the challenge of balancing fiscal consolidation with the need to support economic activity and protect vulnerable populations.

The IMF, an international financial institution, provides financial assistance and policy advice to member countries facing economic challenges. For Pakistan, the IMF has often been a source of emergency funding during periods of economic instability, balance of payments crises, and low foreign exchange reserves. The IMF’s financial packages provide immediate relief by increasing foreign reserves and supporting the currency. They also encourage other global lenders, such as the World Bank and Asian Development Bank, to extend additional funding. Furthermore, IMF guidance can help improve Pakistan’s long-term fiscal discipline.

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