ISLAMABAD: Global ratings agency Fitch said that Pakistan’s budget for FY27 reflects a clear commitment from Islamabad to fiscal discipline under the International Monetary Fund’s (IMF) $7 billion loan program, warning that the country remains vulnerable to inflation.
“Fitch Ratings sees Pakistan’s budget for the fiscal year ending 30 June 2027 (FY27) as maintaining a clear commitment to fiscal discipline under the IMF Extended Fund Facility, by targeting a primary surplus of 2 percent of GDP and an overall deficit of 3.6 percent of GDP,” the ratings agency said in a statement.
Fitch noted that Pakistan had a “strong” FY26 performance, with a projected primary surplus of 2.5 percent of GDP driven by aggressive spending cuts and a provincial surplus of 1.1 percent of the GDP.
“Fitch says this policy momentum improves near-term fiscal prospects, but Pakistan remains relatively vulnerable to inflation and under-performance on tax collection,” it added.
It said whether Pakistan achieves the primary surplus will depend on sustained revenue overperformance relative to historical trends, which the ratings agency said it viewed as “challenging” given structural weaknesses in the tax administration and a “limited pipeline” of new tax measures.
It noted that federal tax collections in FY26 are officially projected to be 0.7 percent of the GDP below target, underscoring persistent challenges in meeting ambitious revenue goals.
“The FY27 tax revenue target (10.6 percent of GDP) would be a record, building on improved collection in FY26,” it said.
Fitch said non-tax revenues, including profit transfers from the State Bank of Pakistan, are set to decline in FY27, while reliance on a large provincial surplus is “another source of uncertainty” due to coordination challenges between the center and provinces.
Finance Minister Muhammad Aurangzeb said last week that Islamabad will tap a portion of provincial funds to help meet its defense requirements. Pakistan has increased defense spending by around 18 percent to $10.8 billion for the next fiscal year.
