In a recently published country report, the International Monetary Fund (IMF) has forecasted that Pakistan’s economy will grow by 2.6% in the current fiscal year, with gradual improvements expected over the next five years.

The report provides a roadmap of key economic indicators, fiscal reforms, and government commitments aimed at stabilizing the economy and ensuring long-term growth.

According to the IMF, Pakistan’s growth is expected to accelerate to 3.6% in 2025-26 and reach 4.1% in 2026-27. From 2027 to 2030, the economy is projected to maintain an average growth rate of 4.5%, signaling a positive outlook for the country’s medium-term future.

The IMF estimates inflation to average 5.1% this year. However, it warns that inflation may rise to 7.7% in the next fiscal year. Between 2026 and 2030, inflation is expected to stabilize at around 6.5%, assuming consistent policy measures and external stability.

Tightening the belt: Fiscal discipline in focus

To address budgetary challenges, the government has promised the IMF significant spending cuts:

• Rs87 billion slashed from the Public Sector Development Programme (PSDP)

• Rs54 billion in energy subsidies to be phased out

• Rs188 billion from emergency funds to remain untouched

Despite these austerity measures, the government aims to protect critical social sector spending while maintaining overall core expenditures at Rs15,958 billion.

Debt-to-GDP ratio on a downward path

A standout figure in the IMF’s analysis is Pakistan’s improving debt profile. The debt-to-GDP ratio is expected to shrink to 71.9% in 2025-26 and fall to 61% by 2030—a welcome development for a country often burdened by debt repayments.

Pakistan has also committed to achieving a primary fiscal surplus of 1.0% of GDP, a key milestone in maintaining financial discipline.

Revenue targets and tax reforms

On the revenue front, the IMF emphasized the need for stronger tax collection. The Federal Board of Revenue (FBR) has set an ambitious target of Rs12,332 billion for this fiscal year, aiming to reach 10.6% of GDP in revenue collection.

To meet this goal, several measures are underway:

• Enhancing compliance risk management

• Monitoring the digital value chain

• Implementing faceless customs assessments

• Tracking irregularities in sales tax returns

Interestingly, the report notes that provincial tax authorities have shown promising performance, boosting overall confidence in domestic revenue mobilization.

Resolving legal bottlenecks to bridge fiscal gaps

A major hurdle in revenue realization lies in unresolved tax disputes. The government is actively pursuing pending court cases worth Rs770 billion, which are expected to see movement in May and June.

These cases include:

• Rs43 billion in the Supreme Court

• Rs217 billion in Islamabad, Sindh, and Lahore High Courts

• Rs104 billion at the Inland Revenue Appellate Tribunal

Initial hearings have already taken place, and the IMF believes favorable outcomes could unlock nearly Rs120 billion in much-needed revenue.