Pakistan IMF talks have entered a crucial stage after the International Monetary Fund (IMF) shared the first draft of the Memorandum of Financial and Economic Policies (MEFP) with Pakistani authorities. The document is expected to form the basis for further discussions on economic targets and reforms before both sides can reach a staff-level agreement (SLA). The latest discussions come as Pakistan continues implementing reforms under its IMF programme.
The visiting IMF mission is expected to remain in Islamabad for several more days as officials from both sides work through the details of the draft. If the authorities and the Fund reach consensus on the MEFP, the process could move toward an SLA. If differences remain, discussions may continue virtually after the mission leaves Pakistan.
Circular Debt Becomes a Major Issue
One of the key areas in the Pakistan IMF talks is the power sector and its circular debt. According to the reported discussions, the circular debt stock reached around Rs1,675 billion by the end of June 2026, exceeding the agreed target.
The issue is significant because the IMF has previously stressed the need for reforms that prevent the repeated accumulation of energy-sector arrears. In its earlier programme discussions with Pakistan, the Fund highlighted the importance of cost recovery, timely tariff adjustments and reducing inefficient subsidies.
The government has allocated Rs830 billion for power-sector subsidies in the FY2026-27 budget. The IMF has also asked Pakistan to move away from the existing cross-subsidy for electricity consumption of up to 200 units and replace it with more targeted support through the Benazir Income Support Programme (BISP). The proposed change is expected to begin in January 2027.
Tax Target Remains Unchanged
Another important part of the Pakistan IMF talks concerns revenue collection. The Federal Board of Revenue (FBR) has an annual tax collection target of Rs15,264 billion for the current fiscal year.
According to the information shared during the discussions, the tax machinery exceeded its first-quarter target by Rs27 billion. As a result, there has been no request at this stage to revise the annual target.
Tax collection remains central to Pakistan’s fiscal adjustment programme. Previous IMF reviews have also focused on broadening the tax base, strengthening tax administration and improving compliance.
The government is also expected to move forward with legislation related to the Sovereign Wealth Fund, which would require parliamentary approval.
Current Account Deficit Under Review
The external sector is another major subject in the Pakistan IMF talks. The IMF is reportedly pushing for a higher projection for Pakistan’s current account deficit, potentially reaching $4 billion during FY2026-27.
The Finance Ministry had earlier projected a deficit of around $2.7 billion, while the Annual Plan placed the estimate at approximately $3.6 billion.
Pakistan recorded a current account deficit of $543 million during July and August of FY2026-27, according to the figures provided in the report. That compared with an $853 million deficit during the same period of the previous fiscal year.
The external outlook could also be affected by developments in the Gulf region. Disruptions to trade, exports, remittances and global energy supplies could place additional pressure on Pakistan’s external account.
Growth and Inflation Outlook
Economic growth projections are also being discussed as part of the Pakistan IMF talks. Pakistani authorities have indicated that real GDP growth could remain around 4% during FY2026-27.
The country’s targets include agriculture growth of 3.6%, industrial growth of 4.5% and services growth of 4.2%. At the same time, inflation remains an important concern, with the CPI-based inflation projection placed at 8.2%, while the IMF’s assessment reportedly puts average inflation somewhat higher, between 8.5% and 9.5%.
The State Bank of Pakistan has projected real economic growth in a range of 3.5% to 4.5%, showing that the official outlook remains focused on moderate expansion.
What Comes Next?
The next stage of the Pakistan IMF talks will depend on how quickly both sides can resolve differences over fiscal targets, energy-sector reforms, subsidies and external-sector projections.
An SLA would mark an important procedural step, although it would still be subject to the IMF Executive Board’s consideration. Pakistan has previously reached SLAs under its current programme, including the third EFF review and second RSF review in March 2026.
Negotiations remain focused on finalising the MEFP. The outcome will determine the immediate direction of Pakistan’s ongoing IMF programme and the economic policy commitments expected for the remainder of FY2026-27.
