The International Monetary Fund has set a stricter fiscal path to Pakistan by setting the primary budget excess target for the next financial year of 1.6% of the size of the economy, which this time is expected to be achieved by largely containing expenses.

Compared to this financial year’s 1% of GDP’s primary budgetary target, which is calculated after making interest payments, the IMF has set the target to 1.6% for the financial year 2025-26, according to the details, the fund released on Saturday after approval of the new loan.

Unlike in this financial year, where the primary excess target was designed to reach by solely depending on rising taxes, the next financial year’s goal is largely to limit the expenses.

The details showed that the IMF compared to 0.7% of the GDP increase in total Relationship between GDP, the IMF has projected 1.3% of the GDP reduction in expenses.

The IMF Macroeconomic Table showed that the total revenue from the federal and provincial governments is estimated at RS15.2% of GDP or RS19.6 trillion at next year’s expected size of the economy. Out of this, the Federal Board of Revenue’s target will be RS14.3 trillion and around the RS4 trillion is considered to be recovered due to non-tax revenue. The rest comes from the provinces.

The total expenses of all five governments estimated at 21.6% of GDP for this financial year are projected at 20.3% of GDP or approx. RS26.3 trillion, according to IMF’s projections. These are hardly RS1 trillion higher than this year’s estimated expenses, which requires all governments to keep their belts tightened.

Since the primary surplus target is exclusive interest payments, the Finance Ministry sources said that the inclusion in the expenses would largely be on the development side without space available on defense spending.

Pakistan cannot afford to reduce or contain the defense budget in the light of new tensions in the region, and approx. 2% of GDP will be awarded for defense expenses, the Ministry of Finance said the sources of the Ministry of Finance. The government has stated to increase the defense budget by at least 18% compared to the last year, they added.

Nigel Clarke, deputy CEO of the IMF and chairman of the IMF Board, who approved two packages on Friday, worth a value of $ 2.4 billion, said risks to Pakistan’s point of view remain elevated especially from global economic policy uncertainty, rising geopolitical tensions and persistent domestic vulnerabilities.

He said that on the basis of this, Pakistani authorities need to maintain sound macroeconomic policies and accelerate reforms to protect the macroeconomic gains and support stronger and sustainable, private sector -led growth in the medium term.

The Ministry of Finance plans to award RS921 billion or 0.7% of GDP for the development budget for the next financial year.

An amount of approx. RS1.35 trillion or just over 1% of GDP is set aside to grant grants in the next financial year, the sources said. Out of this electricity sector is estimated at RS1.04 trillion or 0.8% of GDP, the sources said.

Some of the cabinet ministers are not to award a large pie of the budget for development when it cannot be used especially during the financial year. There is huge waste by the name of development costs, which was also occupied by the Ministry of Planning this week.

The IMF has expected the total budget deficit of 5.1% of GDP or RS6.6 trillion for the next financial year. As for the size of the economy, the deficit is 0.8% of GDP less than this financial year, but almost at the same level in absolute terms.

On Friday, the IMF completed the first review of the program and allowed an immediate payment of about $ 1 billion by rejecting Indians’ unjustified opposition to it. The IMF Direction also approved Resilience and Sustainability Facility (RSF) with access of about $ 1.4 billion.

The IMF said that key priorities under the Bailout package include anchoring macroeconomic sustainability through consistent implementation of healthy macro policies, including reconstruction of international reserve buffers and expansion of the tax base. It also emphasized the need to promote reforms to strengthen competition and increase productivity and competitiveness; Reformation of SOEs and improving the supply of public service and the viability of the energy sector; and build climate understanding.

The IMF noted that inflation fell to a historically low level of 0.3% in April, and progress with disinflation and stable domestic and external conditions has given Pakistan’s state bank the opportunity to reduce the policy rate by a total of 11% since June 2024.

The IMF said Pakistan’s gross official currency reserves are expected to reach $ 13.9 billion at the end of June 2025 and continue to be rebuilt in the medium term. It has projected $ 17.7 billion reserves in the next financial year and a low -current account deficit of 0.4% of GDP.

However, there is no increase in the direct direct investments in the next financial year, estimated at only 0.6% of GDP for the next financial year.

Nigel Clarke, deputy CEO said that “Pakistan has made important progress in restoring macroeconomic stability despite a challenging environment. Since the approval of the extended fund facility, the economy with inflation continues sharply lower and external buffers especially stronger, he added.

“The steadfast implementation of the FY2025 budget and the passage of key tax reforms, especially the agricultural income tax, supports the process of rebuilding policy that makes credibility. Continuing to mobilize greater revenue from under taxed sectors and the non -compatible will make the tax system more fair and effective, according to the IMF.

“The State Bank for Pakistan’s (SBP) tight monetary policy attitude has been crucial to reducing inflation to historically low. Monetary policy should remain appropriate tight and data dependent to ensure that inflation is rooted within SBP’s target area, the fund emphasized.

A more flexible exchange rate will facilitate the adaptation to external and domestic shocks by helping the reconstruction of reserves, according to Nigel.