Pakistan, IMF agree to shift public spending burden to provinces

Pakistan and the International Monetary Fund (IMF) have agreed that during the next fiscal year, public sector spending will likely be borne by the provinces in a phased manner, easing pressure on the federal government’s balance sheet.

According to sources in Islamabad, the government and the IMF have held virtual talks for the past week to discuss measures for the upcoming federal budget, including strengthening the tax base, increasing revenue collection, and reducing provinces’ reliance on federal revenue.

Under the agreement, provinces will gradually assume responsibility for public sector spending and ongoing projects, funding them through their own budgets. Provinces will also expand the tax base, improve revenue collection, and generate a surplus in the new fiscal year.

The IMF expressed satisfaction with the provinces’ performance. Provincial representatives also held virtual meetings with IMF officials.

The provinces assured that starting July 1, 2025, they will impose an agriculture tax, generate a surplus, and tax farmers earning more than PKR 600,000 annually.

Another key development is the gradual shift of all public sector funding to provincial control, reducing dependence on the federal government.

Fiscal Performance Meets IMF Targets

A summary of fiscal operations showed Pakistan met IMF targets for a primary budget surplus at the federal level, along with net revenue collection and cash surplus goals for the four provinces.

The federal government recorded a primary surplus of PKR 3.5 trillion (2.8% of GDP), exceeding the PKR 2.7 trillion target. The higher surplus was largely due to the State Bank of Pakistan’s PKR 2.5 trillion profit.

Provincial Surpluses

• Punjab: PKR 444 billion surplus, with a PKR 117 billion statistical discrepancy.
• Sindh: PKR 395 billion surplus after spending PKR 1.5 trillion, below total revenues. A PKR 10 billion discrepancy was reported.
• Khyber-Pakhtunkhwa (K-P): PKR 111 billion surplus, with PKR 1.03 trillion in income and PKR 920 billion in expenditures. A PKR 13 billion discrepancy was noted.
• Balochistan: PKR 105 billion surplus, indicating higher revenue than expenditures. The federal government recently raised the petroleum levy by PKR 8 per liter to fund Balochistan’s road projects.