Pakistan to press IMF for budget flexibility ahead of 2026-27 plan

Pakistan is preparing to approach the International Monetary Fund (IMF) for added flexibility as it begins shaping the 2026-27 federal budget, according to official sources cited by The News.

Officials say Islamabad wants the Fund to take a more accommodating view while the government sets next year’s fiscal framework, arguing it needs room to support growth amid headwinds. Prime Minister Shehbaz Sharif is in Davos for the World Economic Forum and is expected to meet the IMF’s managing director on January 21.

Sources say the government aims to revisit the timeline and terms covering the remaining period of the $7 billion Extended Fund Facility (EFF) and the $1.4 billion Resilience and Sustainability Facility (RSF), with an eye on extending the programme window through September 2027.

The push comes as policymakers weigh weak signals in key indicators. Officials pointed to a sharp drop in foreign direct investment and a current account position that has shifted from surplus into deficit during the first half of the fiscal year.

Government officials, however, maintain the economy is stabilising and expect GDP growth to improve toward around 4%, supported by a recovery in activity. They also project a manageable current account deficit for the year, alongside continued strength in remittances.

On the fiscal front, authorities are still working to meet revenue targets, while attempting to protect agreed primary balance and deficit goals under the IMF programme. Officials say the IMF’s next review team is expected in late February or early March 2026 for the programme’s third review and the release of the next tranche.

The government’s internal planning discussions include proposals focused on export-led growth, boosting investment through the Special Investment Facilitation Council, reducing power tariffs to improve industrial competitiveness, and seeking space for incentives—some of which would require IMF approval.

Another proposal under consideration is leveraging easing inflation to bring down the policy rate, making credit cheaper for businesses and encouraging banks to expand lending, particularly to small and medium enterprises.