Pakistan and IMF Conclude Policy Talks: Fiscal Reforms and FY2027 Budget Outlook

The International Monetary Fund (IMF) has concluded a mission to Pakistan, marking the end of a series of discussions held in Islamabad from May 13 to May 20, 2026. The engagement focused on assessing recent economic developments, the implementation of ongoing reforms, and shaping the budget strategy for the 2027 fiscal year.

Led by Iva Petrova, the IMF mission engaged with Pakistani authorities on the broader economic landscape, including the impact of regional disruptions stemming from the Middle East conflict. These discussions are critical to the country’s performance under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF).

Key Fiscal Commitments

A central pillar of the recent talks was the reaffirmation of fiscal discipline. Authorities have committed to a primary surplus target of two percent of gross domestic product (GDP) for FY2027. This target is intended to bolster fiscal sustainability and enhance the country’s economic resilience.

To achieve this, the government plans to pursue gradual fiscal consolidation, which includes:

• Broadening the tax base and improving tax administration.
• Enhancing spending efficiency.
• Strengthening public financial management at both federal and provincial levels.

Discussions regarding the specifics of the FY2027 budget are expected to continue in the coming days.

Monetary Policy and Structural Reforms

The State Bank of Pakistan (SBP) has reiterated its commitment to maintaining a tight monetary policy stance. This strategy is designed to anchor inflation expectations while the bank monitors potential secondary impacts from energy price fluctuations. The IMF emphasized that exchange rate flexibility remains a vital shock absorber for the economy, alongside the need to deepen the foreign exchange interbank market.

Beyond fiscal and monetary policy, the mission addressed structural reforms aimed at fostering durable growth and attracting private investment. Key areas of focus include:

• Energy sector reforms and restructuring of state-owned enterprises.
• Product market liberalization.
• Financial sector reforms.
• Integration of climate considerations into budget and investment planning under the RSF.

Looking Ahead

Earlier in May 2026, the IMF approved a review of Pakistan’s reform program, facilitating disbursements of approximately $1.1 billion from the EFF and $220 million from the RSF. These payments brought the total support under the two facilities to roughly $4.8 billion.

As the government prepares for the upcoming fiscal year, the IMF has set a federal revenue target of Rs17.145 trillion for 2026-27. Provincial governments are expected to play a larger role in revenue generation, with calls to increase their contributions by at least Rs400 billion—a roughly 40 percent increase over existing shares—by focusing on more effective collection in sectors such as agriculture, property, and services.

The next IMF mission, which is expected to include the Article IV consultation along with further reviews of the EFF and RSF, is slated for the second half of 2026.

Key Takeaways

• Fiscal Target: Pakistan has reaffirmed a primary surplus target of 2% of GDP for FY2027.
• Monetary Stance: The State Bank of Pakistan continues to prioritize an appropriately tight monetary policy to manage inflation.
• Revenue Goals: Federal revenue for FY2027 is targeted at Rs17.145 trillion, with provinces tasked to boost their contributions by Rs400 billion.
• Ongoing Cooperation: The IMF mission praised the constructive engagement and continued commitment to sound policies demonstrated by federal and provincial authorities.