Pakistan commits to 2% primary surplus target, tight monetary policy in IMF talks

Pakistan reaffirmed its commitment to achieving a primary budget surplus of 2% of gross domestic product (GDP) in fiscal year 2026-27 and maintaining a tight monetary policy stance to anchor inflation amid rising risks linked to the conflict in the Middle East.

The discussions were held with the International Monetary Fund (IMF) on the country’s budget strategy and reform agenda under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF).

According to a statement, an IMF mission led by Ms. Iva Petrova concluded its staff visit to Islamabad from May 13-20, 2026.

The staff visit focused on recent economic developments, reform implementation and the budget strategy for fiscal year 2027.

At the end of the visit, Petrova issued the following statement:

“We had constructive discussions with the authorities on recent economic developments, including the impact of ongoing disruptions from the conflict in the Middle East, the FY2027 budget formulation, and progress on the reform agenda under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF).

“The authorities reaffirmed their commitment to a primary surplus target of 2% of GDP in FY2027, which will support fiscal sustainability and continue to build resilience.

“The envisaged gradual fiscal consolidation will be supported by efforts to broaden the tax base, improve tax administration, and enhance spending efficiency and public financial management at both the federal and provincial levels.

“Discussions on the FY2027 budget will continue in the coming days.

“The State Bank of Pakistan reiterated its commitment to maintaining an appropriately tight monetary policy stance to anchor inflation expectations and said it would continue to closely monitor potential second-round effects from energy price increases.

“Furthermore, exchange rate flexibility should continue to serve as a key shock absorber, while efforts should continue to deepen the foreign exchange interbank market.

“Discussions also covered ongoing structural reforms, including reforms in the energy sector and state-owned enterprises, product market liberalization, and financial sector reforms aimed at supporting durable growth and attracting high-quality private investment.

“Progress under the RSF was also discussed, including efforts to adopt a disaster risk financing framework, integrate climate considerations into budget and investment planning, and advance power subsidy reforms.

“The mission thanks the federal and provincial authorities for their constructive engagement, strong collaboration and continued commitment to sound policies.

“The next mission, which is expected to include the Article IV consultation and EFF and RSF reviews, is scheduled to take place in the second half of 2026.”