Pakistan-IMF Talks Begin as Rs370bn Social Spending Gap Emerges
ISLAMABAD, PAKISTAN — WEB DESK: Pakistan and the International Monetary Fund have begun talks on the latest review of the country’s economic programme, with Islamabad demonstrating progress on major fiscal and monetary indicators but facing scrutiny over missed social-spending targets and delays in structural reforms.
The IMF mission began discussions from Karachi on Wednesday and is reviewing Pakistan’s implementation of programme conditions through June 2026. The Fund has simultaneously started its Article IV consultation, a broader assessment of the economy, fiscal position, financial system and economic outlook.
Successful completion of the discussions could lead to a recommendation to the IMF Executive Board for the release of two tranches worth a combined $1.2 billion.
Pakistan entered the negotiations with progress on several quantitative targets. The government exceeded the programme condition for its primary budget surplus, which excludes interest payments, and met requirements for timely adjustments in electricity and gas prices.
The IMF had already said after completing Pakistan’s previous review in May that fiscal performance had been strong while stressing that further reforms were needed in public finances, competition, productivity, state-owned enterprises, social spending and the energy sector.
Rs370 Billion Health and Education Shortfall
One of the most significant issues in the latest negotiations is spending on health and education.
The federal and provincial governments were required to spend a combined Rs3.47 trillion on the two sectors. According to officials cited by The Express Tribune, actual spending missed that target by approximately Rs370 billion.
The gap could become a difficult point in negotiations because expanding spending on health, education, social protection and human capital forms part of the programme’s stated reform priorities. The IMF has previously emphasised that fiscal consolidation should protect vulnerable households while improving human-capital investment.
SOE Reforms Face Delays
Progress on reforming state-owned enterprises is another area expected to receive close attention.
Pakistan had committed to introducing amendments covering 10 SOEs to strengthen corporate governance.
The IMF’s latest published programme documents identify reducing the state’s footprint and reforming SOEs as key priorities for strengthening productivity, governance and fiscal sustainability.
The government has also tabled legislation to amend the Sovereign Wealth Fund Act, but the bill had not yet secured parliamentary approval, according to the Tribune.
Another missed measure concerns a national policy for sugar-market liberalisation, including licensing, price controls, import and export permissions and zoning arrangements.
Rs853 Billion Statistical Discrepancy Under Scrutiny
IMF officials are also expected to examine what the Tribune report describes as Rs853 billion in statistical discrepancies in the previous fiscal year’s government accounts.
Taxation will form another major part of the negotiations.
The IMF has begun examining tax issues involving federal and provincial authorities, including the agricultural taxation regime. The performance of the Federal Board of Revenue and property-sector taxation are also expected to come under scrutiny.
Middle East Crisis Adds Economic Pressure
The review is taking place against a more difficult external environment.
The continuing Middle East conflict has increased Pakistan’s exposure to higher oil and LNG costs. Recent disruption to Gulf energy supplies has pushed Asian LNG prices sharply higher and increased pressure on energy-importing economies including Pakistan.
Finance Minister Muhammad Aurangzeb recently said a prolonged regional conflict could threaten Pakistan’s 4% growth target, although he expressed confidence that the country could meet its IMF quantitative and structural benchmarks.
The State Bank expects economic activity to strengthen during the current fiscal year, but at a slower pace than previously anticipated because of elevated energy costs and supply disruptions. It also expects the current-account deficit to widen while remaining below 1% of GDP, according to the Tribune report.
Pakistan’s current IMF programme is backed by a 37-month Extended Fund Facility approved in September 2024. The IMF Executive Board completed its third review in May 2026, unlocking around $1.1 billion under the EFF and $220 million under the Resilience and Sustainability Facility.
The latest negotiations will therefore test whether Pakistan’s progress on headline fiscal and monetary targets is sufficient to offset delays in social spending, SOE governance and other structural commitments.
