- Primary balance target set at 2% of GDP.
- Provinces asked to raise Rs400bn revenue.
- Current account deficit projected near $4bn.
ISLAMABAD: Pakistan and the visiting International Monetary Fund (IMF) team have reached a broad agreement on the macroeconomic framework for the upcoming budget 2026-27, with the Ministry of Finance projecting real GDP growth at 4.1% and average CPI-based inflation at around 8.6%, The News reported.
The IMF has already set a primary balance target of 2% of GDP, equivalent to Rs2.9 trillion, for the next budget.
Finance Minister Muhammad Aurangzeb on Monday held a virtual meeting with the four provincial finance ministers and their economic teams, asking the provinces to focus on additional revenue measures worth Rs400 billion to achieve the desired primary surplus in the 2026-27 budget.
Top official sources confirmed to The News on Monday that the Pakistani side negotiated with the IMF team for an envisaged real GDP growth rate of 4.1% against the Fund’s projection of 3.5% for the upcoming financial year.
The CPI-based inflation, according to the sources, resulted in a heated debate as the Ministry of Finance has projected inflation in the range of 8.6% on average compared to the IMF’s projection of 8.4%, keeping in view the persistence of higher fuel prices in the first two quarters of the next financial year.
Independent economists have expressed their fears that CPI-based inflation might go up to 11% on average, with increasing apprehension that the State Bank of Pakistan might opt for further tightening of monetary policy in the next fiscal year.
The current account deficit is projected to hover around $4 billion, less than 1% of GDP in the next fiscal year, backed by exports of $35 billion, imports of $70 billion and remittances in the range of $42 billion.
Regarding revenue surpluses from the provinces, the upcoming budget will also include provincial tax revenue targets aiming to contribute an additional 0.3 percentage points of GDP to the tax-to-GDP ratio (Rs400 billion) and corresponding primary surplus targets sufficient to achieve the general government primary balance target of 2%.
The provinces will mobilise revenue by continuing to steadfastly expand the enforcement of the GST on services to gradually cover all sectors of the economy.
New agricultural income tax rates will be applied to FY26 agricultural income (with the revenue impact materialising in FY27), starting from the next fiscal year. In the ongoing fiscal year, the IMF did not fix any target related to Agricultural Income Tax (AIT).
The provinces will have to accelerate the collection of GST on services by strengthening enforcement. To ensure that gains from the AIT reform materialise, provinces should take advantage of data sharing with the FBR, increase the automation of AIT procedures, and dedicate additional human and IT resources to enforcement.
The IMF has been providing regular, tailored advice to provinces to address their specific implementation challenges. All the provinces agree that they will not introduce any policy or action which could be considered to undermine or run against any of the commitments or policies agreed with the IMF.
All provinces agree to consult with the IMF through the federal Ministry of Finance before modifying or adopting any measures that could affect or undercut the programme’s specified targets or deviate from its goals.
