ISLAMABAD: The International Monetary Fund (IMF) has urged Pakistan to broaden its tax base and enhance spending efficiency among other measures, the lender said late Wednesday, as its mission concluded “constructive” talks with Pakistani authorities on reform implementation and the budget strategy for the next fiscal year.
The lender said its mission, led by Iva Petrova, visited Islamabad from May 13 till May 20, during which Pakistani authorities committed to a primary surplus target of 2 percent of gross domestic product in fiscal year 2026-2027, which begins on July 1.
The visit comes at a time of an ongoing conflict between the United States (US) and Iran in the Gulf that poses significant risks for Pakistan, which relies heavily on Gulf crude supplies and workers’ remittances and has struggled for years with high inflation and recurring balance-of-payments crises.
During the talks, the IMF said the State Bank of Pakistan had reiterated its commitment to maintaining an appropriately tight monetary policy stance to anchor inflation expectations and that it would continue to closely monitor potential second-round effects from energy price increases.
“We had constructive discussions with the authorities on recent economic developments, including the impact of ongoing disruptions from the conflict in the Middle East, the FY2027 budget formulation, and progress on the reform agenda under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF),” Petrova said.
“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.”
Pakistan is currently treading a long path to economic recovery under multiple IMF-backed programs. The government in Islamabad has taken several steps to cushion the impact of rising global prices linked to the conflict in the Middle East, including targeted subsidies and demand management measures, while maintaining exchange-rate flexibility under the IMF program.
This month, the IMF board completed the third review of its $7 billion Extended Fund Facility (EFF) and the second review of a $1.4 billion Resilience and Sustainability Facility (RSF), allowing Islamabad to draw around $1.1 billion and $220 million, respectively.
The latest discussions 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, according to the IMF.
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.
“Furthermore, exchange rate flexibility should continue to serve as a key shock absorber, and efforts should continue to build a deeper foreign exchange interbank market,” Petrova said, adding that discussions on the FY2027 budget will continue in the coming days and the next mission is expected to hold talks in the second half of 2026.
