IMF begins virtual budget talks with Pakistan today

May 14, 2025 (MLN): The International Monetary Fund (IMF) commenced virtual discussions with Pakistan on Wednesday, focusing on the federal budget for FY2025-26.

The talks were initially scheduled to begin in person in Islamabad but were moved online after the IMF mission’s visit was postponed due to regional security concerns triggered by Indian aggression, which disrupted air travel.

Despite the delay, sources stated the change would not impact the progress or timing of the programme.

The IMF team is now expected to arrive in Islamabad by the weekend, contingent on security conditions.

The discussions will run virtually from May 14 to May 16, with the in-person segment planned to continue until May 23.

A new mission chief, Iva Petrova, has been appointed by the IMF to lead the programme in Pakistan.

Petrova, who previously served as mission chief to Armenia and has been part of IMF teams for Israel, Iceland, and Latvia, will join the budget discussions alongside outgoing mission chief Nathan Porter.

Known for his firm policy stance and media control, Porter’s term has seen tight communication protocols, particularly within Pakistan’s Finance Ministry.

The Pakistani government plans to announce its FY2025-26 budget on June 2, ahead of Eidul Azha holidays.

It will be Finance Minister Muhammad Aurangzeb’s second budget presentation, aligned with IMF's fiscal targets.

According to sources, the IMF has directed Pakistan to plan for a primary budget surplus of 1.6% of GDP, necessitating an additional Rs2 trillion beyond non-interest expenditures.

The Federal Board of Revenue (FBR) has been assigned a tax collection target of 11% of GDP, amounting to Rs14.3tr.

The IMF will evaluate the feasibility of achieving this target and whether the government’s revenue measures are credible and practical, as per the press release.

The federal budget size is expected to be below Rs18tr, with a projected overall budget deficit of 5.1% of GDP (Rs6.7tr), after incorporating expected provincial cash surpluses.

On the first day of talks, the Finance Ministry is scheduled to brief the IMF on fiscal developments from July to March of the current fiscal year, including approved supplementary grants.

The IMF’s fiscal benchmarks have helped maintain programme continuity, with Pakistan exceeding key targets.

The federal government reported a primary surplus of Rs3.5tr surpassing the Rs2.7tr target representing 2.8% of GDP.

This surplus was mainly due to early booking of the entire Rs2.5tr estimated annual central bank profit in the first quarter.

Additionally, provinces recorded a combined cash surplus of Rs1.03tr, exceeding the IMF’s target by Rs25 billion, and collected Rs685 billion in tax revenues, outperforming expectations by Rs79 billion.

However, the FBR missed its nine-month revenue collection target of over Rs9.2tr, gathering only Rs8.5tr falling short by Rs715bn.

The cumulative tax shortfall in the first ten months of the fiscal year reached Rs830bn.

In April alone, the shortfall increased by Rs135bn, breaching the IMF-agreed cap of Rs640bn for the full fiscal year.

By the end of April, the FBR had collected Rs9.3tr a 27% increase from the previous year, but insufficient to meet annual goals.

Discussions will also cover updates on expected non-tax revenues, including petroleum levy collections and central bank profits, as well as any savings from planned downsizing of the government.

The IMF is also expected to scrutinize enforcement efforts in tax compliance areas, including the track and trace system, retailer schemes, and compliance risk management, where the FBR has so far underperformed.

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