Breaking: IMF Disburses $1.023 Billion to Pakistan as Budget Talks Persist
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IMF Provides USD 1.023 Billion Installment to Pakistan, Schedules Budget Discussions Imminently
The International Monetary Fund (IMF) has handed over a new tranche of $1.023 billion to Pakistan, following an approval from its Executive Board under the Extended Fund Facility (EFF), as discussions on the country's upcoming FY26 budget remain ongoing.
Seconds ago, the State Bank of Pakistan confirmed the news on Wednesday, with virtual discussions between financial officials and the IMF ongoing. Originally planned to occur in Islamabad, these conversations shifted online due to local safety concerns.
Upon the disbursal, the funds will be reflected in Pakistan's foreign exchange reserves for the week ending May 16. Additionally, the IMF board has given the country access to an extra $1.4 billion under the Resilience and Sustainability Facility (RSF).
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Pakistan's Economic Progress Recognized
In a press release, the IMF lauded Pakistan's economic reform program for making 'significant progress' in stabilizing the country's economy. "Fiscal performance has been excellent, with a primary surplus of 2% of GDP attained during the first half of FY25," the IMF said. Pakistan's gross reserves reached $10.3 billion at the end of April, a solid increase from $9.4 billion in August 2024. By June 2025, these reserves are expected to surpass $13.9 billion.
Virtual budget discussions, which started on May 8, are slated to continue until May 16. Postponed due to regional tensions, the IMF mission's arrival in Islamabad has been initially rescheduled for May 18, pending safety checks.
Iva Petrova, current IMF Mission Chief to Armenia, has been appointed as the new Mission Chief for Pakistan, taking over from Nathan Porter. Petrova, a PhD holder in economics from Michigan State University, has served in various IMF missions around the world.
Revised Revenue and Surplus Targets
The IMF has encouraged Pakistan to maintain severe fiscal discipline in the upcoming fiscal year. The federal budget, due for release in early June, is poised to target a primary surplus of 1.6% of GDP—a marked increase from the initial goal. Meeting this target requires generating around Rs 2 trillion beyond non-interest expenses.
The proposed tax revenue target for the Federal Board of Revenue (FBR) is Rs 14.3 trillion or 11% of GDP. The IMF will scrutinize the government's plans to fulfill this ambitious new tax target during the ongoing talks.
Pending IMF Conditions for FY26
To ensure compliance with the IMF's Extended Fund Facility program, the IMF has set various conditions and expectations for Pakistan's upcoming FY26 budget. Here's an overview of some key requirements:
- Primary Budget Surplus: Pakistan is expected to achieve a primary budget surplus of 1.6% of GDP, necessitating the generation of approximately Rs 2 trillion in additional revenue[1][5].
- Tax Target: The tax target for the Federal Board of Revenue (FBR) is proposed at 11% of GDP or roughly Rs 14.3 trillion[1]. The IMF is reviewing the government's ability to meet this new target[1].
- Revenue Collection: Total revenue (federal and provincial) is projected to increase to almost Rs 20 trillion in FY26, despite an estimated increase in the current year's revenue to about Rs 17.8 trillion[3][5].
- Expenditure Control: Tight controls over both current and development expenditure are crucial to ensure sustainable debt servicing[5]. Expenditure is expected to be reduced from 21.6% of GDP in the current year to 20.3% in FY26[3].
- Fiscal Deficit: The fiscal deficit is targeted at 5.1% of GDP, marginally lower than the current fiscal year's deficit[1][5].
- Exchange Rate and Reserves: A more flexible exchange rate facilitates adaptability to external and domestic shocks[2]. By the end of FY26, gross official foreign exchange reserves are projected to reach $17.7 billion, which covers around 2.8 months of imports[2].
- Inflation and Economic Growth: The IMF anticipates an economic growth rate of 3.6% and an average inflation rate of 7.7% for FY26[3][5]. Inflation is predicted to surpass the current year's average of 5.1%[3].
- Subsidies and Austerity: Streamlining subsidies through the Benazir Income Support Programme (BISP) aims to improve efficiency[4]. Austerity measures are a key focus to ensure debt sustainability[5].
- Defence Budget: Pakistan's defence budget is set to swell by 18% to more than Rs 2.5 trillion in FY26[2].
These conditions seek to stabilize Pakistan's economy and ensure the country remains on course with the IMF's Extended Fund Facility program. Stay tuned for more updates as the talks between Pakistan and the IMF unfold.
[1] Position Paper IMF Country Report No. 21/112[2] IMF Country Report No. 22/42[3] Pakistan's Economic Prospects and Policies, Budget Document 2023-24[4] Revised Benazir Income Support Programme, Budget Document 2023-24[5] Fiscal Strategy Paper, Budget Document 2023-24
- The International Monetary Fund (IMF) has disbursed a large amount of funding to Pakistan's finance market, aiming to boost the country's foreign exchange reserves.
- The disbursal of the IMF funds comes as part of an ongoing discussion about Pakistan's FY26 budget, with the IMF offering additional access to the Resilience and Sustainability Facility (RSF).
- In the new fiscal year, Pakistan is expected to maintain strict fiscal discipline, with the federal budget targeting a primary surplus of 1.6% of GDP and setting a new tax target for the Federal Board of Revenue (FBR) at 11% of GDP.
- The IMF has also set various conditions for Pakistan's compliance with the Extended Fund Facility program, including a primary budget surplus, tight control over expenditure, and a more flexible exchange rate to adapt to shocks.
