IMF team in Pakistan for crucial budget talks

A delegation from the International Monetary Fund (IMF) has come to Pakistan to engage in high-level policy discussions regarding the federal government’s budget for fiscal year (FY) 2025-26. According to reports the delegation will remain in Pakistan until May 22. 

As per the Ministry of Finance (MoF), Islamabad’s negotiations with the international lender will cover a vast array of budgetary estimates, revenue targets and expenditure figures. The IMF intends to lend support to the domestic economy to relieve the growing external financing and fiscal pressures.

The IMF has also tacked on 11 conditions on Pakistan, bringing the total number of loan conditions to 50,  to ensure that it remains on the roadmap laid out by the fund. One of these conditions, revealed in a staff level report, included raising debt servicing surcharge on electricity bills.

While stricter austerity measures might be required in FY 2025-26’s budget, the general public has witnessed a fall in purchasing power owing to rising taxation levels. 

Reports reveal that key officials from the Federal Board of Revenue (FBR), State Bank of Pakistan (SBP), the MoF and Planning Commission are to tackle negotiations with the delegation sent by the international creditor. While macroeconomic indicators have logged a remarkable improvement, with an award winning journalist even dubbing Pakistan’s economy as a ‘mini-miracle’, the country still struggles in the face of the external financing gap.

Reports indicate that the external financing gap continues to widen and if left unchecked, could grow to a staggering $19.75 billion in FY 2025-26. Furthermore, the gap is not expected to close any time soon as projections suggest that the gap will not shrink, with analysts anticipating for the gap to remain over $19 billion even in FY 2026-27.  

Beyond that, estimates from reports reveal that by FY 2027-28, Pakistan’s total external financial shortfall will surge to approximately Rs9 trillion. However, by FY 2027-28, analysts believe that Pakistan foreign exchange reserves could grow to a respectable $23 billion.

Reports suggest that remittances will remain at approximately $36 billion throughout, with the current account deficit being close to $3.85 billion. While rising remittance inflows recently allowed Pakistan to experience a rare current account surplus, a widening of the trade deficit can result in a worsening of the current account position.