Pakistan, IMF Budget negotiations run over deadline, key fiscal targets in sight

May 20, 2026 (MLN): Pakistan's public sector development spending for the next fiscal year is projected to be set at around Rs968 billion as the government and the International Monetary Fund extended budget negotiations by two days to finalize the federal budget, which is expected to be on June 5.

Most points of contention have reportedly been resolved, with talks continuing on a handful of remaining issues, according to well-informed sources.

The IMF mission, which had been scheduled to conclude discussions on Wednesday, will now extend its stay in Islamabad to wrap up the final details.

On revenue targets, the Federal Board of Revenue has been assigned a collection goal of Rs15.264 trillion for the next fiscal year, with an interim target of Rs7.022tr to be met by December 2026.

The IMF has recommended an 18% increase in the petroleum levy target, putting total PDL collections at Rs1.73tr. An additional Rs95 billion is expected through tax audits, with a further Rs50 billion in recoveries targeted from the sugar, cement, tobacco and fertilizer sectors.

The petroleum development levy could also be hiked to Rs100 per litre.

Provinces have been asked by the IMF to generate an additional Rs430bn in revenue and contribute a combined surplus of nearly Rs2tr to the federal government.

Provincial development budgets are proposed to rise from Rs2.1tr to Rs2.5tr, while provincial revenues are projected to reach Rs1.95tr.

On the expenditure side, defence spending is set to rise from Rs2.564tr to Rs2.665tr. Debt servicing remains the heaviest fiscal burden, with interest payments projected at Rs7.8tr. Pakistan's external financing needs are estimated at $21.2bn.

In a social protection measure, the government and IMF have reached a preliminary agreement to raise quarterly payments under the Benazir Income Support Programme from Rs14,500 to Rs18,000.

The IMF has also proposed Rs430bn in new taxation measures and recommended against granting fresh tax exemptions to special economic zones, instead calling for a gradual phase-out of existing incentives for special economic and technology zones by 2035.

Conditions requiring biannual increases in gas and electricity tariffs remain in place.

Furthermore, Economic growth for the next fiscal year is projected at 3.5%, with average inflation forecast at 8.4%.

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