ISLAMABAD: The federal government has decided to consult the International Monetary Fund (IMF) on the recent escalation of tensions with India, particularly if the situation results in increased defense spending and alters the country’s fiscal outlook.
The decision comes as Islamabad prepares for formal negotiations with the IMF starting May 14, ahead of presenting the federal budget for the 2025–26 fiscal year.
According to finance ministry sources, the government will engage with the IMF on key components of its upcoming budget, including proposed revenue targets and projected expenditures.
“If tensions with India intensify and lead to a rise in defense spending, we will factor that into our discussions with the IMF,” said a senior government official familiar with the matter.
Recent flare-ups along the Line of Control (LoC) have raised concerns within financial circles about a potential spike in military expenditure, especially at a time when Pakistan is navigating strict fiscal constraints under its ongoing IMF program. Officials emphasized the importance of transparency with the IMF to prevent misunderstandings, especially if the budget sees significant reallocation of funds toward defense.
Budget Strategy and Tax Measures
As part of its fiscal consolidation efforts, the government is preparing to set an ambitious tax revenue target for FY2025–26. Sources confirmed that the Federal Board of Revenue (FBR) may aim to collect over Rs14 trillion, with plans to keep the tax-to-GDP ratio around 11 percent — a key target under IMF guidelines.
One focal point of the upcoming talks is expected to be the super tax, which has drawn criticism from the business community for contributing to a steep tax burden. Some industries now face an effective tax rate of up to 39 percent — a figure officials acknowledge is among the highest globally.
“There’s increasing momentum within policymaking circles to reassess the super tax, considering both its economic impact and implications for investor confidence,” a source noted.
