Pakistan and the International Monetary Fund are set to negotiate key economic targets after the Fund’s visiting mission shared an initial draft of the Memorandum of Financial and Economic Policies, according to a report published on Saturday.
The IMF review mission is expected to remain in Islamabad for several more days, potentially until the middle of next week. If both sides reach agreement on the MEFP, negotiations could culminate in a staff-level agreement. If differences remain unresolved, discussions are expected to continue virtually.
Among the issues raised by the IMF is Pakistan’s failure to meet the agreed circular debt target for the power sector by the end of June 2026. Power-sector circular debt stood at Rs1.675 trillion, exceeding the target agreed with the Fund.
The government has allocated Rs830 billion in power-sector subsidies for the 2026-27 fiscal year.
According to the report, the IMF has also asked the government to eliminate the existing cross-subsidy for electricity consumers using up to 200 units and replace it with a targeted subsidy delivered through the Benazir Income Support Programme. The proposed arrangement is expected to take effect from January 2027.
Legislation related to the Sovereign Wealth Fund is also expected to be placed before Parliament for approval.
Meanwhile, the Federal Board of Revenue’s annual tax collection target of Rs15.264 trillion is expected to remain unchanged after the tax authority exceeded its first-quarter target by Rs27 billion. The FBR has not sought a revision of its annual collection target at this stage.
Differences have also emerged over projections for Pakistan’s current account deficit during the ongoing fiscal year.
The IMF has reportedly pushed for the deficit to be projected at as much as $4 billion, while the Ministry of Finance had earlier estimated that it would remain around $2.7 billion.
Pakistan’s Annual Plan for 2026-27, approved by the National Economic Council under Prime Minister Shehbaz Sharif, projects the current account deficit at approximately $3.6 billion.
The Annual Plan estimates a deficit of around $3.599 billion for FY2026-27, assuming a ceasefire leads to an agreement among parties involved in the Gulf conflict.
It warned, however, that a prolonged conflict in the Gulf could place additional pressure on Pakistan’s external sector by disrupting trade with Gulf Cooperation Council countries, affecting exports of goods and services and potentially weakening remittance inflows from more than one million Pakistani workers in the region.
Higher global energy prices and supply-chain disruptions could also raise Pakistan’s oil import bill and widen the trade deficit, according to the plan.
Pakistan recorded a current account deficit of $543 million during July and August of FY2026-27, according to State Bank of Pakistan data. The figure represented a 36% reduction from the $853 million deficit recorded during the same period of the previous fiscal year.
Alongside the programme review, the IMF mission has also conducted Article IV consultations, the Fund’s regular assessment of a member country’s economic conditions, policies and associated risks.
Pakistani authorities have projected economic growth of around 4% during the current fiscal year, while the State Bank of Pakistan expects real GDP growth to remain within a range of 3.5% to 4.5%.
The government’s annual targets envisage overall GDP growth of 4%, including 3.6% growth in agriculture, 4.5% in industry and 4.2% in services.
Consumer price inflation is projected by the government at 8.2%, while the IMF is reported to expect average inflation to remain higher, in the range of 8.5% to 9.5% during the fiscal year.
The reported details of the negotiations and proposed policy measures are based on information attributed to officials and sources familiar with the IMF review process. Final targets and commitments will depend on the outcome of ongoing negotiations.
This is a developing story.
