Pakistan, IMF set for crucial budget talks amid fears of regional economic fallout

Pakistan is preparing to begin key budget negotiations with the International Monetary Fund (IMF) as an IMF delegation is expected to arrive in the country shortly for talks on the upcoming federal budget for fiscal year 2026-27, sources said Tuesday.

According to sources, formal negotiations between Pakistani authorities and the IMF are likely to begin tomorrow and are expected to continue for around one and a half weeks.

The discussions will focus on finalising major fiscal targets, revenue projections, expenditure frameworks and macroeconomic indicators for the next financial year.

Sources said the upcoming talks will determine the budget targets for FY2026-27, including commitments linked to Pakistan’s ongoing IMF programme.

Officials familiar with the preparations said the IMF has so far not held discussions with the federal government regarding the transfer of the Benazir Income Support Programme (BISP) to the provinces, despite speculation surrounding possible decentralisation measures.

Economic managers are also expected to brief the IMF delegation on emerging risks to Pakistan’s economy stemming from the tense regional situation and instability in the Middle East.

Sources warned that inflationary pressures could intensify this year due to rising geopolitical tensions, particularly if global oil prices continue to surge. Estimates shared with the IMF suggest international crude oil prices could fluctuate between $82 and $125 per barrel under different regional conflict scenarios.

In view of possible revenue pressures, the government may consider imposing additional petroleum levy charges or sales tax on petroleum products, sources added.

Officials also expressed concern that prolonged instability in the Middle East could negatively affect Pakistan’s external sector. According to sources, Pakistan’s remittance inflows may decline if Gulf economies slow down because of war-related uncertainty.

Sources further indicated that employment opportunities for Pakistani workers in Gulf countries could also shrink, creating additional economic challenges for the country.

The IMF has reportedly been informed that Pakistan intends to maintain a primary surplus balance of 1.3 percent of GDP during the first year of the fiscal framework, while the surplus is projected to improve to 1.6 percent of GDP in the following year.

Meanwhile, the current account deficit is expected to remain at 0.4 percent of GDP during the ongoing fiscal year and may widen slightly to 0.9 percent of GDP next year, according to projections shared during preparatory discussions.

Sources said Pakistani authorities have defended the State Bank of Pakistan’s tight monetary policy, arguing that it played a key role in controlling inflationary trends over the past year.

Officials also maintained that the country’s foreign exchange reserves were not built solely through external borrowing, but were supported by broader macroeconomic stabilisation measures and improved inflows.