IMF pushing to tax pension and salary increase for govt employees

Pakistan’s federal government has formed a three-member panel under the prime minister’s advisers on political affairs and inter-provincial coordination (IPC) to review and approve projects for the Public Sector Development Programme (PSDP) 2025-26.

The panel, which includes the prime minister’s advisers and the state minister for railways, will meet May 26-27 to evaluate proposals, primarily from ruling party lawmakers. Legislators have reportedly been instructed to submit constituency-specific schemes.

Meanwhile, the government’s economic team, led by the deputy prime minister and foreign minister, is finalizing the fiscal year 2026 budget in line with International Monetary Fund (IMF) terms. Islamabad faces tough negotiations on tax reforms, pension cuts and spending reductions.

Policy-level talks between Pakistan and the IMF concluded Friday, with the IMF demanding stricter fiscal consolidation. Officials familiar with the matter told Nukta that IMF negotiators directed the Federal Board of Revenue (FBR) to draft the next Finance Bill in accordance with prior commitments, rejecting several revenue proposals — including changes to tax slabs for salaried individuals.

Instead, the IMF is pushing to tax pensions — a politically contentious move — and has barred any salary or pension increases for government employees in the upcoming budget.

Disagreements remain over the tax revenue target. The Finance Division has proposed a 14.1 trillion Pakistani rupee ($50.7 billion) goal for FY26, while the Prime Minister’s Secretariat advocates a higher target of 14.8 trillion rupees ($53.3 billion), reflecting ambitions to expand fiscal space. The IMF, however, has projected a midpoint target of 14.3 trillion rupees ($51.5 billion).

The budget comes at a critical time as Pakistan prepares for a new Extended Fund Facility (EFF) with the IMF, which is expected to drive economic reforms amid persistent fiscal and external challenges. With stringent measures like pension taxes and no salary relief, the budget could test both political resolve and public patience.