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Business Recorder
30-05-2025
- Business
- Business Recorder
Budget: time for respite & reform
Pakistan has shown signs of overall stabilisation, supported by improved fiscal performance, strengthened external account, and receding inflation. Revenue Mobilization and restrained current spending have contributed to a narrower fiscal deficit and a surplus primary balance. The current account registered a higher surplus, driven by remittances and export growth, while reserves have improved, and the exchange rate remains stable, aligned with the market. Inflation has reduced to its lowest level, creating space for a more supportive monetary policy in upcoming months. Although overall industrial activity remained weak. However, automobiles and export-oriented sub-sectors showed an impressive performance. Social protection and climate finance initiatives are progressing, reinforcing the path toward inclusive and sustainable growth. Economic Update & Outlook- April – 2025, Government of Pakistan, Ministry of Finance The budget for fiscal year (FY) 2025–26, to be presented on June 10, 2025, is set against a backdrop of critical reforms, macroeconomic recovery, and renewed commitments to fiscal discipline. The International Monetary Fund (IMF), concluding its staff visit of Islamabad, headed by Nathan Porter, has provided a direction for budget formulation and broader economic restructuring. Engaged in serious dialogue and detailed consultations with Pakistan's federal and provincial authorities, the IMF mission outlined contours of the new fiscal framework, macroeconomic objectives, and structural reforms. The mission acknowledged satisfactory progress and laid out stringent conditions under the US$ 7 billion 37-month Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF) programmes. IMF's EFF programme's primary objective is to achieve a primary surplus of 1.6 percent of GDP in FY2026 through robust revenue generation and prioritized expenditure, urging on enhancement in tax compliance, broadening of tax base and rationalization of fiscal spending. The strategic framework agreed upon during this mission now defines the configurations of Pakistan's forthcoming budget, making it a cornerstone of economic recovery and international confidence. IMF's recommendations centered on revenue generation without undermining inclusive growth. Emphasis on expanding the tax base through policy and administrative measures echoed the need to transition from narrow, burdensome taxation to a more equitable and growth-oriented regime. The Pakistani authorities were advised to limit untargeted subsidies, curtail wasteful expenditures, and ensure targeted social protection. The IMF reinforced the importance of sound macroeconomic policies including maintaining a tight and data-driven monetary stance. State Bank of Pakistan's (SBP's) objective to keep inflation at a minimum level was endorsed, and a flexible exchange rate regime was deemed critical to managing external shocks and rebuilding reserve buffers. Focus on energy sector reform also featured prominently, particularly addressing ineptitudes in tariff structures, reducing system losses, and ensuring cost-recovery pricing. The fiscal framework was required not only to meet debt sustainability metrics but also to enable pro-investment policies that promote long-term economic stability and job creation. IMF's reform recommendations aligned with Pakistan's economic data reveals both progress and persisting structural flaws. April 2025 Economic Update issued by the Ministry of Finance offers insight into these dynamics. The macroeconomic indicators have shown signs of recovery. Improved revenue performance, moderated inflation, and current account surplus suggest that the economy is gradually transitioning from a crisis management phase to a recovery path. Fiscal deficit for Jul-Feb FY2025 declined to 2.2 percent of GDP, while primary surplus stood at 3 percent of GDP, indicating prudent fiscal management. Revenue receipts grew by 43.3 percent year-on-year, with a substantial 73 percent surge in non-tax revenues. The Federal Board of Revenue (FBR) collected, after blocking refunds and taking advances not yet due, Rs. 8.45 trillion during Jul-Mar FY2025, reflecting a 25.9 percent increase (sic) as compared to corresponding period of last year. These improvements offer fiscal space that can be strategically directed towards productive expenditure. The monetary side remains cautiously supportive. Inflation, which stood at 20.7 percent in March 2024, declined sharply to 0.7 percent year-on-year by March 2025, a multi-decade low. Decline in inflation provides policy room for easing monetary conditions, potentially reducing interest burden and supporting credit flows to the private sector. SBP's foreign exchange reserves reached US$10.6 billion as of April 2025, contributing to total reserves of US$15.7 billion. The current account posted a US$1.9 billion surplus, supported by export recovery and a record US$28 billion in remittances. These figures highlight a restored balance of payments discipline and reduced reliance on external borrowing. The industrial sector presents a mixed picture. Large-scale manufacturing (LSM) output remained under pressure with a decline of 1.9 percent in Jul-Feb FY2025. However, segments such as textiles, apparel, and petroleum products showed resilience. The automobile sector registered significant growth in production, indicating that selective industrial recovery is underway. Cement exports grew by 28.1 percent despite weak domestic demand. These sectoral trends underline the importance of targeted incentives and consistent energy supply to stimulate broader industrial revival. The agricultural sector, often overlooked in fiscal prioritization, displayed its strength during the Rabi season. Wheat was cultivated on over 22 million acres with an estimated output of 27.9 million tonnes. Agricultural credit disbursement rose by 15.4 percent while imports of agricultural machinery surged by 40.5 percent. The above trends in agricultural sector reflect early success in mechanization and access to input, supporting the argument for increased public investment in rural productivity. Data from the update supports IMF's call to expand the agricultural tax net, which remains a politically sensitive but economically necessary reform. The external sector's performance supports confidence. Exports rose 7.7 percent to US$24.7 billion, led by garments and textiles, while IT exports surged by 23.7 percent to US$2.8 billion. Remittance inflows showed robust growth from key corridors such as Saudi Arabia and the United Arab Emirates (UAE). Foreign direct investment (FDI) increased by 14 percent, reaching US$1.6 billion, primarily in financial services, energy, oil and gas. Stock exchange index crossed 117,000 points in March, driven by positive investor sentiment. These trends reflect growing market confidence, aided by macroeconomic stabilisation and policy predictability. IMF's emphasis on rebuilding investor confidence is thus partially validated by these developments. IMF's concern about energy sector inefficiencies is well-placed. The high cost of power generation, transmission losses, and circular debt accumulation have long undermined competitiveness. The budget must respond with a roadmap for tariff rationalization, elimination of cross-subsidies, and improved governance of distribution companies. Power sector reforms must go beyond pricing to address theft, billing inefficiencies, and lack of investment in renewable energy. IMF's emphasis for cost recovery-based pricing and legislative changes for levies must be operationalized in this budget cycle. Resilience of the social protection system was also recognized. The government spent Rs 347 billion under Benazir Income Support Programme (BISP) during Jul-Feb FY2025, representing an 82.6 percent increase over the previous year reflecting the commitment to shielding vulnerable households, in line with IMF's directions on protecting priority expenditures. Continuity of inflation-linked transfers under the Kafaalat programme must be embedded in the budgetary framework. Integration of digital tools in welfare delivery should be expanded to improve targeting and transparency. The budget must now transform these policy directions and macroeconomic signals into actionable proposals. Priority should be broadening tax base through digitization and enforcement. The FBR should diligently enforce digital invoicing, inter-agency data sharing, and AI-based risk profiling to enhance compliance. The large undocumented segments in retail, real estate, and agriculture must be brought under the tax net. Simplification of tax procedures, reduction in litigation, and automation of refunds will improve compliance and reduce resistance. The second priority should be providing relief to the salaried class. Inflation has eroded real incomes, and relief must be extended through upward revision of tax slabs and introduction of indexation. The withholding and advance tax mechanisms must be streamlined to prevent excess collection and delays in refund. The burden of indirect taxes such as General Sales Tax (GST) disproportionately affects fixed-income households. Reduction of sales tax rates, particularly on essential items and utilities, must be considered. The fiscal space generated by non-tax revenues and improved FBR performance offers room for targeted tax relief. The third priority is energy sector reform. The budget should announce a timeline for tariff rebasing, reduction of subsidies, and modernization of grid infrastructure. Investment in smart metering and solar integration must be scaled up to reduce technical losses. The use of petroleum levy must be linked to infrastructure investment in the energy sector rather than general revenue needs. Structural bottlenecks in the energy sector directly affect industry competitiveness and must be addressed holistically. The fourth priority is stimulating GDP growth through public development spending and private investment. The Public Sector Development Programme must prioritize high-yield projects with employment impact, especially in transport, housing, and rural connectivity. Private sector participation in infrastructure through public-private partnerships should be incentivized via fiscal guarantees and tax relief. The budget must facilitate credit to small and medium enterprises (SMEs) through interest subvention and guarantee schemes. The government should allocate funds for technology parks, export clusters, and skill training to support job creation and competitiveness. The fifth priority is building external resilience. The budget must aim to support export diversification through sector-specific incentives and simplification of export procedures. Foreign exchange reserves should be improved by retaining remittance inflows through formal channels via attractive saving instruments. The incentives for FDI should include tax holidays, contract enforcement guarantees, and repatriation ease. The Board of Investment must be allocated resources for aggressive outreach and facilitation. The sixth priority must be institutional reform. The budget must include allocations for digitization of land records, integration of National Database & Registration Authority (NADRA) with economic databases and strengthening of regulatory bodies. The anti-corruption agencies must be funded to improve accountability in public spending. IMF's insistence for governance diagnostics must translate into budgetary measures that strengthen institutions and restore public trust. Budget for FY2025–26 should not be merely a fiscal document, but a test of political will and administrative capability. IMF's confidence, validated by completion of the first EFF review and RSF approval, presents a unique window for reforms. The economic data shows promise, but the transition from stabilisation to growth requires sustained effort. The public expects meaningful relief, the markets expect clarity, and the international community expects reform. The budget must deliver all three. The government has an opportunity to use this budget as a platform for transformation. Clarity of priorities, alignment with global institutions, and responsiveness to domestic needs can together chart a sustainable economic path. The time for incrementalism is over. The moment calls for ambition, discipline, and action. The future of Pakistan's economy may well be written in the pages of the FY2025–26 budget. (Huzaima Bukhari & Dr Ikramul Haq, lawyers and partners of Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE) and Abdul Rauf Shakoori is a corporate lawyer) Copyright Business Recorder, 2025
Express Tribune
25-05-2025
- Business
- Express Tribune
IMF says talks on budget to continue
Listen to article The International Monetary Fund (IMF) on Saturday returned to Washington without formally concluding discussions, saying that the talks would continue in coming days with a view to "agreeing on the budget", in a statement that shows gaps between the two sides. "We will continue discussions towards agreeing over the authorities' fiscal year 2026 budget over the coming days," stated Nathan Porter, the outgoing Mission Chief to Pakistan, in a statement issued after the end of 10-day talks held on the contours of the new budget. Porter said that the discussions focused on actions to enhance revenueincluding by bolstering compliance and expanding the tax baseand prioritise expenditure". The IMF mission was scheduled to arrive in Pakistan on May 13 till May 23 but due to India-Pakistan tensions, it held the first round of talks from Turkyia. The face-to-face discussions began on May 19 from Islamabad but did not conclude within the pre-agreed timeframe. The IMF said that its staff visit was focused on recent economic developments, programme implementation, and the budget strategy for fiscal year 2026. The government sources said that there was broader understanding on the next fiscal year's overarching goal of primary budget surplus; however, there were gaps in the understanding of both sides, particularly over the modus operandi to reach the goal. Porter said that the authorities concerned reaffirmed their commitment to fiscal consolidation while safeguarding social and priority expenditures, aiming for a primary surplus of 1.6% of GDP in FY2026. At the next fiscal year's projected size of the economy, the surplus will be equal to nearly Rs2.1 trillion, which is slightly lower than what the Ministry of Finance stated last week. Interestingly, the IMF said that based on the preliminary findings of this mission, the IMF staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision. The government sources said still no consensus had been reached over the next fiscal year's tax target, some revenue measures and relief to certain sectors. They said that the target would depend on the spending outlays for the three major heads of the budget. There were also gaps on the points of giving relief to the salaried class, the real estate sector and taxing of pensions, said the sources. Last week, Prime Minister Shehbaz Sharif termed the proposed relief for the salaried class by the FBR as insufficient and instead asked the tax machinery to secure more relief. The senior FBR and the finance ministry negotiators said that the quantum of the salaried class relief was not yet decided. The sources said that the IMF asked Pakistan to propose alternate measures to provide relief to the salaried class. The Fund suggested imposing taxes on high-end pensioners and using the money for providing relief to the salaried class. However, the IMF's condition to link relief for the salaried class with other measures which, in fact, is a reversal of injustice done to it in the last budget, was not justified. The salaried class has already paid Rs437 billion in income tax compared to less than Rs4 million by the traders. The IMF's statement on broadening the tax base seems cosmetic, as it did not do anything against the government's failure to collect due taxes from retailers. The sources said that the government's view about taxing the pensioners was that it would be a politically difficult decision to tax the high-end pensioners. The government is again inclined to provide relief to the realty sector, particularly reducing the transaction taxes, which is not in line with the IMF policy for the sector. The IMF had already agreed to abolish the federal excise duty, FBR Chairman Rashid Langrial said last month. Nathan said that the IMF "held constructive discussions with the authorities on their fiscal year 2026 budget proposals and broader economic policy, and reform agenda supported by the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF)". Porter said that discussions also covered ongoing energy sector reforms aimed at improving financial viability and reducing the high-cost structure of Pakistan's power sector as well as other structural reforms which will help foster sustainable growth and promote a more level playing field for business and investment. The sources said that the IMF did not agree to the Power Division to allocate nearly 1% of the GDP power subsidies and consented to give Rs1.04 trillion. The government has already delayed the budget by over one week to June 10th after it could not timely sort out all the issues before approving the summary to announce the budget on June 2. Porter said that Pakistan also emphasized their commitment to ensuring sound macroeconomic policy making and building buffers. "In this context, maintaining an appropriately tight and data-dependent monetary policy remains a priority to ensure inflation is anchored within the central bank's medium-term target range of 5-7%" said Porter. Porter reiterated his earlier statement and emphasized that "rebuilding foreign exchange reserve buffers, preserving a fully functioning FX market, and allowing for greater exchange rate flexibility are critical to strengthening resilience to external shocks". Despite the IMF programme, Pakistan this time is not able to fetch in major foreign loans due to a poor credit rating. Porter said that the IMF team will remain engaged and continue its close dialogue with the authorities and the next mission associated with the next EFF and RSF reviews is expected in the second half of 2025.
Business Recorder
24-05-2025
- Business
- Business Recorder
Next mission expected in H2: IMF says FY26 budget agreement talks will continue
ISLAMABAD: The International Monetary Fund (IMF) has said it would continue discussions with Pakistan authorities towards agreeing over the budget for the fiscal year 2025-26. The Fund also stated that the next mission associated with the next Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) reviews is expected in the second half of 2025. An IMF mission led by Nathan Porter has concluded its staff visit to Islamabad which began on May 19, 2025. IMF, govt to continue FY26 budget discussions 'over the coming days' The staff visit focused on recent economic developments, programme implementation, and the budget strategy for fiscal year (FY) 2026. At the end of the visit, Porter issued the following statement: We held constructive discussions with the authorities on their fiscal year 2026 budget proposals and broader economic policy, and reform agenda supported by the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF). He further stated that the authorities reaffirmed their commitment to fiscal consolidation while safeguarding social and priority expenditures, aiming for a primary surplus of 1.6 per cent of GDP in fiscal year 2026. Discussions focused on actions to enhance revenue—including by bolstering compliance and expanding the tax base—and prioritize expenditure. We will continue discussions towards agreeing over the authorities' fiscal year 2026 budget over the coming days. Discussions also covered ongoing energy sector reforms aimed at improving financial viability and reducing the high-cost structure of Pakistan's power sector as well as other structural reforms which will help foster sustainable growth and promote a more level playing field for business and investment. The authorities also emphasised their commitment to ensuring sound macroeconomic policy making and building buffers. In this context, maintaining an appropriately tight and data-dependent monetary policy remains a priority to ensure inflation is anchored within the central bank's medium-term target range of 5–7 per cent. At the same time, rebuilding foreign exchange reserve buffers, preserving a fully functioning FX market, and allowing for greater exchange rate flexibility are critical to strengthening resilience to external shocks. The IMF team will remain engaged and continue its close dialogue with the authorities. The next mission associated with the next EFF and RSF reviews is expected in the second half of 2025. The Ministry of Finance has announced that the federal budget will be presented on June 10 instead of June 2. Copyright Business Recorder, 2025
Indian Express
24-05-2025
- Business
- Indian Express
IMF says talks with Pakistan on budget ‘constructive', commits to continue talks
The International Monetary Fund (IMF) said on Saturday that it held 'constructive discussions' with Pakistani authorities on the upcoming budget while committing to continue talks in the coming days. The IMF team started high-level policy talks in Islamabad on May 19 to discuss the FY 2025-26 budget, which went on for days but apparently were inconclusive, forcing the government to delay the announcement of the budget till June 10. 'We held constructive discussions with the authorities on their FY2026 budget proposals and broader economic policy, and reform agenda supported by the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF),' the IMF's mission chief Nathan Porter said in a statement. 'We will continue discussions towards agreeing over the authorities' FY26 budget over the coming days,' the statement added. The current discussions were focused on actions to enhance revenue, including bolstering compliance and expanding the tax base and prioritising expenditure. 'The authorities reaffirmed their commitment to fiscal consolidation while safeguarding social and priority expenditures, aiming for a primary surplus of 1.6 per cent of GDP in FY2026,' Porter said. He added that talks covered ongoing energy sector reforms aimed at improving financial viability and reducing the high-cost structure of Pakistan's power sector as well as other structural reforms which will help foster sustainable growth and promote a more level playing field for business and investment. The government emphasised its commitment to 'ensuring sound macroeconomic policy-making and building buffers,' according to the statement. 'In this context, maintaining an appropriately tight and data-dependent monetary policy remains a priority to ensure inflation is anchored within the central bank's medium-term target range of 5–7 per cent,' Porter stressed. 'Rebuilding foreign exchange (FX) reserve buffers, preserving a fully functioning FX market, and allowing for greater exchange rate flexibility are critical to strengthening resilience to external shocks,' added Porter. The IMF also said that its next mission associated with the next EFF and RSF reviews was expected in the second half of 2025. Pakistan and the IMF signed a USD 7 billion EFF loan last year and the country so far received two tranches, including the second one disbursed this month. The IMF executive board approved the fresh assistance to Pakistan notwithstanding New Delhi's apprehensions that the funds could be used for cross-border terrorism. On May 16, India's Defence Minister Rajnath Singh pressed the Washington-based global lender to reconsider the financial assistance, saying Islamabad could use a large part of it to fund the terrorist infrastructure.
Time of India
24-05-2025
- Business
- Time of India
IMF in 'constructive discussions' with Pakistan over upcoming budget, next review expected in second half of 2025
The International Monetary Fund said that it was in talks with Pakistan, holding 'constructive discussions' focused on the FY2025-26 budget and key economic reforms. The IMF team began high-level policy talks on 19 May in Islamabad and are expected to continue in the coming days. However, with no final agreement reached, its government pushed back the announcement of the budget to 10 June. The negotiations are part of Pakistan's ongoing efforts to secure continued support under the IMF's loan arrangements. 'We held constructive discussions with the authorities on their FY2026 budget proposals and broader economic policy, and reform agenda supported by the 2024 Extended Fund Facility (EFF) and the 2025 Resilience and Sustainability Facility (RSF),' said Nathan Porter, the IMF's mission chief, in a statement quoted by PTI. The current round of talks revolved around revenue enhancement, including better tax compliance and expanding the tax base, alongside prioritising expenditure. "The authorities reaffirmed their commitment to fiscal consolidation while safeguarding social and priority expenditures, aiming for a primary surplus of 1.6 per cent of GDP in FY2026," Porter said. Highlights of the discussions Energy and sustainability: Energy sector reform was high on the agenda. Porter said that these discussions aimed towards reducing the cost structure of Pakistan's power sector and improving its financial stability, moves seen as vital to economic sustainability and investor confidence. Need for macroeconomic structure: The IMF highlighted the importance of a sound macroeconomic framework, saying that maintaining an 'appropriately tight and data-dependent monetary policy remains a priority to ensure inflation is maintained within the bank's medium-term target range of 5–7 per cent. Forex restructure: Porter also raised the need to rebuild the country's foreign exchange reserves and support a fully functioning exchange rate market. Rebuilding foreign exchange reserves, maintaining a well-functioning forex market and increasing exchange rate flexibility are essential for boosting resilience against external shocks, he said. The IMF said its next mission to Pakistan, as part of the upcoming EFF and RSF reviews, is expected in the second half of 2025. Pakistan signed a $7 billion extended fund facility with the IMF last year and has received two tranches so far, including the most recent disbursal earlier this month. The approval came despite objections from India's objections that the funds may be diverted to finance cross border terrorism. On 16 May, defence minister Rajnath Singh urged the IMF to rethink the support, claiming that the funds could be diverted by Islamabad to boost its terror activities. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
