ISLAMABAD (PEN) : Pakistan’s government plans to discuss potential increases in defence spending with the IMF during upcoming budget negotiations.
In light of escalating tensions with India, Pakistan’s federal government intends to inform the International Monetary Fund (IMF) about potential increases in defence expenditure during upcoming budget negotiations. Formal talks with the IMF are scheduled to commence on May 14, coinciding with the presentation of Pakistan’s fiscal year 2025-26 budget.
Escalating India-Pakistan Tensions
The decision to brief the IMF follows a series of military confrontations between India and Pakistan. On April 22, a terrorist attack in Indian-administered Kashmir resulted in the deaths of 26 Hindu tourists, leading India to accuse Pakistan of involvement—a claim Islamabad denies. In response, India conducted airstrikes on Pakistani territory, targeting what it described as “terrorist infrastructure.” Pakistan reported civilian casualties and retaliated by downing Indian aircraft and engaging in artillery exchanges along the Line of Control
These developments have raised concerns about the potential for increased defence spending, which could strain Pakistan’s already limited fiscal resources. The government aims to maintain transparency with the IMF regarding any significant budgetary changes.
Budgetary Considerations and IMF Engagement
Sources within Pakistan’s finance ministry indicate that discussions with the IMF will encompass the government’s overall budgetary framework, including proposed revenue targets and expenditure estimates. A senior official noted, “If the situation with India escalates further and translates into higher defence spending, the government will share these considerations with the IMF during the talks.”
The IMF has previously urged Pakistan to ensure that any emergency funds provided are not diverted towards defence spending or repayment of external debt. India has emphasized the need for stringent monitoring of such funds to prevent misuse
Tax Revenue Targets and Fiscal Strategy
In addition to defence spending, Pakistan’s government is considering ambitious tax revenue targets for the upcoming fiscal year. The Federal Board of Revenue (FBR) aims to surpass Rs 14,000 billion, aligning with the IMF’s recommended tax-to-GDP ratio of around 11 percent for FY2025-26. Officials also plan to revisit the super tax, which has faced criticism from the business community due to its economic impact .
The IMF’s engagement is crucial for finalizing the budget and securing a longer-term loan package to support Pakistan’s economic stability and structural reforms. The government is expected to update the IMF on progress in areas such as tax broadening measures, energy sector reforms, and state-owned enterprise restructuring.
Conclusion
As Pakistan navigates the complexities of its fiscal strategy amid heightened security concerns, transparent communication with international financial institutions like the IMF remains essential. The upcoming budget negotiations will play a pivotal role in balancing national security priorities with economic imperatives.
