IMF flags tight fiscal outlook for Pakistan amid rising debt and regional risks

The International Monetary Fund has outlined Pakistan's fiscal framework for the upcoming financial year, projecting total expenditure of PKR 26.423 trillion against a tax revenue target of PKR 15.264 trillion.

The report details revenue expectations, spending pressures and key budget priorities as Pakistan navigates ongoing economic constraints. Debt servicing and defense costs account for the largest share of projected spending.

What does the IMF project for Pakistan's budget in FY27?

The IMF projects Pakistan's tax revenue at PKR 15.264 trillion for the next fiscal year, with direct taxes contributing PKR 7.413 trillion and sales tax PKR 4.727 trillion.

Federal excise duties are forecast at PKR 1.043 trillion and customs duties at PKR 1.651 trillion. Total expenditure is projected at PKR 26.423 trillion, leaving a substantial gap that underscores the fiscal tightening required.

How much is Pakistan expected to collect from petroleum levies?

The IMF report flags continued reliance on petroleum-related levies as a key revenue stream.

The Petroleum Development Levy is projected at PKR 1.727 trillion for the next fiscal year, up from current-year benchmarks, and is expected to outperform existing targets. Gas surcharges are estimated at PKR 151 billion.

Non-tax revenues are projected at PKR 2.768 trillion, down from the PKR 3.702 trillion expected this year, though broadly in line with revised estimates. The decline reflects reduced one-off inflows and signals growing pressure on the government to expand the tax base.

What are Pakistan's biggest expenditure pressures in the IMF report?

Debt servicing is the single largest expenditure item, with interest and repayments estimated at PKR 7.824 trillion. Domestic debt servicing accounts for PKR 6.652 trillion of that total, with external obligations adding PKR 1.107 trillion. Federal expenditures overall are projected at PKR 16.592 trillion.

Defense spending is also projected to rise, reaching PKR 2.665 trillion compared to PKR 2.564 trillion in the current fiscal year. The combined weight of debt servicing and defense leaves limited fiscal space for development or social spending. Pakistan's gross government debt is expected to remain elevated, though projected to fall to around 70.1 percent of GDP this year.

What risks does the IMF highlight for Pakistan's economic outlook?

The IMF has identified the Middle East conflict as a significant external risk for Pakistan, with potential impacts including higher energy import costs, lower remittances and increased balance of payments pressure.

GDP growth is projected to slow to between 3.5 and 3.6 percent for the next fiscal year, below the government's own target of 4.2 percent. Average inflation is forecast to rise to 8.4 percent next year, up from 7.2 percent this year.

The Fund has urged Pakistan to maintain strict fiscal discipline, remove tax exemptions, increase energy tariffs and limit subsidies.

It has also proposed bringing agricultural income into the tax net at a 45 percent rate, aligned with other business sectors. Pakistan's external financing needs remain large, with foreign exchange reserves covering only 70 percent of short-term debt.