Pakistan and the International Monetary Fund (IMF) will begin negotiations on key economic targets after the visiting IMF review mission shared its first draft of the Memorandum of Financial and Economic Policies (MEFP).
According to media reports, the mission is expected to stay in Islamabad until about the middle of next week. A staff-level agreement (SLA) will be concluded if both sides reach consensus on the MEFP. Otherwise, the talks will continue virtually.
The IMF has raised concerns over the breach of the power-sector circular debt target for the end of June 2026. Circular debt stood at Rs1,675 billion, exceeding the agreed ceiling. The government has budgeted a power-sector subsidy of Rs830 billion for FY27.
The Fund has asked the government to eliminate the cross-subsidy on power consumption of up to 200 units and replace it with a targeted subsidy through the Benazir Income Support Programme (BISP) from January 2027. Parliament will also approve legislation related to the Sovereign Wealth Fund (SWF).
The Federal Board of Revenue (FBR) tax collection target of Rs15,264 billion will remain unchanged, as collection exceeded the first-quarter target by Rs27 billion. The FBR has not requested a revision of its annual target at this stage.
On the external sector, the IMF has insisted on projecting the current account deficit (CAD) for FY27 at up to $4 billion. The Ministry of Finance had earlier projected the deficit at around $2.7 billion, while the Annual Plan 2026-27, approved by the National Economic Council (NEC) under Prime Minister Shehbaz Sharif, put it at $3.6 billion.
The Annual Plan states that the deficit is likely to remain around $3.599 billion if the ceasefire leads to a deal among the parties in the Gulf region.
A prolonged Gulf conflict would disrupt trade with Gulf Cooperation Council (GCC) countries, hit exports of goods and services, and could reduce remittances from more than one million Pakistani workers in the region. Global energy supply-chain disruptions have also raised oil import costs and widened the trade deficit, the plan added.
Pakistan recorded a current account deficit of $543 million in July–August FY27, according to the State Bank of Pakistan (SBP). This is 36 percent lower than the $853 million deficit in the same period of FY26.
The IMF also held Article IV consultations, the Fund’s regular review of a member country’s economic and financial situation, policies and risks.
Pakistani authorities told the IMF that GDP growth would be around 4 percent in the current fiscal year, while the SBP projected growth in the range of 3.5 percent to 4.5 percent. The growth target of 4 percent includes agriculture at 3.6 percent, industry at 4.5 percent and services at 4.2 percent.
Inflation, measured by the Consumer Price Index (CPI), is projected at 8.2 percent. The IMF expects it to remain elevated, averaging 8.5 percent to 9.5 percent in the ongoing fiscal year.
