ISLAMABAD: The International Monetary Fund (IMF) mission is scheduled to conclude its current round of discussions on Pakistan’s 2025-26 federal budget today. However, high-level virtual negotiations are anticipated to continue even after the budget speech, according to top government sources.
A critical point of agreement is that all IMF conditions are expected to be fulfilled before the Finance Bill 2025 is formally enacted into law. A significant sticking point in the ongoing discussions remains the IMF’s firm stance that any potential tax relief extended to the salaried class must be directly offset by corresponding cuts in government expenditures.
In line with this fiscal restraint, the Ministry of Finance has indicated that the upcoming budget will likely not include any increases in salaries or pensions for government employees.
Export sector relief & defense spending
The IMF has also expressed reservations regarding offering significant tax relief to the export sector, signaling a tough stance on sector-specific concessions. The Fund has explicitly linked the ambitious upcoming tax collection target to a parallel commitment from the government to reduce state spending. Sources further revealed that the government has requested a delay in raising the duty on fertilizer from 5 percent to 10 percent and has also sought to postpone the imposition of a new 5 percent tax on pesticides, indicating efforts to protect key economic inputs.
Meanwhile, despite the overall climate of budgetary restraint and the pressure to reduce expenditures, defense spending is widely expected to see an increase. This anticipated rise is attributed to recent developments that have underscored the critical need for robust national security and defense capabilities.
In a broader fiscal push, the IMF has also reiterated its call for provincial governments to play their part by reining in their own expenditures and actively working to boost their respective revenue generation efforts. The culmination of these talks will shape Pakistan’s economic direction for the next fiscal year.
