THE government has delayed the announcement of the budget for the next fiscal year by a little over a week to June 10, presumably due to lingering differences with the IMF over certain expenditure proposals the lender thinks could undermine progress on its $7bn funding programme.
For its part, the government considers the contested expenditures critical to providing relief to the middle class, which is burdened with heavy taxes and elevated cost of living, as well as to strengthening Pakistan’s military defences against India. After multiple inconclusive rounds of discussions on the budget proposals for the coming year, the IMF mission left the country, agreeing to continue talks on tax measures and expenditures virtually over the next week.
Following its visit, the lender issued a statement calling the discussions with Pakistani authorities on the “budget proposals and broader economic policy, and reform agenda supported by the 2024 Extended Fund Facility and the 2025 Resilience and Sustainability Facility” constructive. It said that the authorities had “reaffirmed their commitment to fiscal consolidation while safeguarding social and priority expenditures, aiming for a primary surplus of 1.6pc of GDP” during the next fiscal year. It said that the “discussions focused on actions to enhance revenue — including by bolstering compliance and expanding the tax base — and prioritise expenditure”.
The difference of opinion on higher allocations for defence following India’s unprovoked aggression and on certain tax relief measures for the salaried class is not something to fret over. Previously too, we have seen both sides disagreeing on fiscal measures before finding middle ground. The IMF mission head’s statement also does not indicate any major gap between the two sides on the budget proposals.
The Fund probably wants the government to cover all the bases through additional revenue measures to absorb the impact on its budget left by any tax relief and increase in defence spending. The government must continue on the path of sound macroeconomic policy and fiscal consolidation to protect its fragile recovery that remains vulnerable to potential slippages on account of, for instance, pressure from the real estate lobby for tax breaks and exogenous shocks.
Indeed, the government is under a lot of political stress from various segments of the population and industry to provide some kind of relief and push growth. Going forward, the pressure will increase and the political leadership may find it difficult to resist the temptation of creating a feel-good atmosphere in the country.
The question is: is it in a position to break free from the IMF’s conditions? It can hardly afford this. Living off multilateral funds and loan rollovers by friendly countries as it is doing at the moment, Pakistan is at a critical juncture and must carefully weigh every step it takes.
Published in Dawn, May 26th, 2025
