Pakistan and the International Monetary Fund have agreed to continue discussions on the upcoming federal budget for fiscal year 2027, following a week-long review of the country’s economic situation and reform progress.
An IMF team, led by Iva Petrova, visited Islamabad from May 13 to May 20. The visit focused on recent economic trends, progress on reforms, and early planning for the next budget.
In a statement issued at the end of the visit, Petrova described the talks as constructive. Both sides reviewed the impact of external pressures, including disruptions linked to tensions in the Middle East, and discussed how these could affect Pakistan’s economy in the coming months.
Focus on fiscal discipline and reforms
Officials reiterated their plan to achieve a primary budget surplus of 2 percent of GDP in FY2027. This target is seen as important for keeping public finances on a sustainable path and reducing economic risks.
To meet this goal, the government is expected to expand the tax base, improve tax collection, and manage spending more carefully. Efforts are also underway to strengthen financial management at both federal and provincial levels.
The IMF noted that talks on the budget will continue in the coming days, suggesting that key details are still being finalised.
Monetary policy and inflation outlook
The State Bank of Pakistan has maintained that it will keep monetary policy tight to control inflation. The central bank is also watching closely for any ripple effects from rising energy prices, which could push costs higher across the economy.
At the same time, the IMF stressed the importance of a flexible exchange rate to absorb external shocks. It also called for further development of the foreign exchange market to improve stability.
Broader reform agenda remains in focus
Beyond the budget, discussions covered ongoing reforms in the energy sector and state-owned enterprises. Steps to open up markets and strengthen the financial sector were also reviewed, with the aim of supporting long-term growth and attracting private investment.
Progress under the Resilience and Sustainability Facility was also part of the talks. This includes work on disaster risk financing, climate-focused budgeting, and reforms to power subsidies.
The next IMF mission, expected in the second half of 2026, will likely include a broader review of Pakistan’s economy as well as assessments under its ongoing loan programmes.
Read next: IMF in talks with Pakistan for next review
