Pakistan, IMF begin budget talks with focus on fiscal targets, shift from interest-based banking, energy sector plans

An International Monetary Fund (IMF) mission is set to begin budget discussions with Pakistani authorities today [Wednesday], with talks expected to extend beyond fiscal targets to cover structural reforms, energy sector plans and financial sector changes linked to the end of interest-based banking by 2028.

According to government sources, the mission will finalise revenue and expenditure targets for the next fiscal year and review progress on legal amendments aimed at reducing the state’s footprint in the public sector and opening the sugar sector to greater competition.

The Express Tribune reported that the IMF is also expected to review Pakistan’s strategy for the financial sector after constitutional requirements to eliminate interest-based lending become effective in 2028.

Sources said a high-level inter-agency committee led by the Finance Ministry was finalising a post-2027 financial sector strategy, which is scheduled to be submitted to the IMF for review by June.

The lender will also hold discussions on the future structure and role of commercial banks under the proposed system.

Officials said the government had submitted a new sugar sector policy aimed at increasing local and foreign competition in the industry, while the IMF would seek updates on reforms designed to reduce market controls benefiting sugar millers.

The mission will also review implementation of conditions related to subsidies on foreign remittances.

Pakistan has assured the IMF that it is preparing a comprehensive assessment of obstacles affecting remittance inflows and the associated subsidy costs, with an action plan expected by the end of this month.

Under the proposed arrangement, the State Bank of Pakistan and Finance Ministry will develop a mechanism to ensure that claims under remittance subsidy schemes remain within annual budget allocations.

Energy sector issues are also expected to remain a major focus during the discussions.

The IMF mission will review implementation of Pakistan’s circular debt reduction plan and ensure that electricity subsidies in the next fiscal year remain within the proposed cap of ₨890 billion unless revised with IMF approval.

Sources said the lender would also seek updates on the impact of Middle East conflict-related energy price shocks, possible electricity tariff increases and proposed gas price revisions from July.

The IMF may also approve a gas sector circular debt management plan during the talks.

Progress on phasing out general electricity subsidies and shifting toward targeted support through the Benazir Income Support Programme will also be discussed.

The budget endorsed by the IMF is expected to be presented before the National Assembly next month for approval.