The International Monetary Fund’s negotiating team wrapped up its latest discussions on Pakistan’s federal budget for 2025-26 today, though virtual talks are expected to continue following the official budget announcement. According to senior government sources, all IMF requirements must be fulfilled before the Finance Bill 2025 receives final approval.
Salary Relief Contingent on Spending Cuts
A significant point of contention has emerged regarding potential relief for salaried workers. The IMF has maintained its position that any tax breaks or benefits provided to the salaried class must be balanced by equivalent reductions in government spending elsewhere. This condition reflects the Fund’s broader emphasis on fiscal discipline and expenditure management.
Adding to the challenges facing government employees, the Ministry of Finance has confirmed that no salary increases or pension adjustments will be included in the upcoming budget framework.
Export Sector Faces Limited Support
The IMF has shown reluctance to approve substantial incentives for the export sector, linking any tax collection targets directly to corresponding decreases in state expenditures. This approach underscores the organization’s focus on maintaining budgetary balance through careful revenue and spending alignment.
Government officials have reportedly requested postponing certain tax measures, including the planned increase in fertilizer duties from 5% to 10% and the introduction of a new 5% levy on pesticides. These requests reflect concerns about the impact on agricultural costs and food security.
Defense Spending to Increase Despite Constraints
While most government sectors face budgetary restrictions, defense allocations are anticipated to rise in the coming fiscal year. Officials cite recent security developments as justification for increased military spending, highlighting the ongoing tension between fiscal consolidation and national security priorities.
Provincial Governments Under Pressure
The IMF has called upon provincial administrations to implement stricter expenditure controls while simultaneously working to enhance their revenue generation capabilities. This dual requirement places additional pressure on regional governments to balance their books independently.
Looking Ahead
As virtual negotiations continue post-budget announcement, the government faces the challenge of meeting IMF conditions while addressing domestic economic pressures. The final shape of the Finance Bill 2025 will depend on how successfully these competing demands can be reconciled in the coming weeks.