AS and when the largest coalition government at the national level headed by Prime Minister Muhammad Shehbaz Sharif starts preparations for presenting another budget to the nation, the International Monetary Fund (IMF) immediately gets involved in this budget-making process from start to end. Nothing—repeat nothing—is included in the federal budget without the approval of the IMF. As such, it was pertinent to dilate on Pakistan-IMF relations first and then discuss the Federal Budget 2026–27, which was the third presentation of the incumbent federal government. The IMF was founded in December 1945, apparently after the end of the Second World War and has its headquarters in Washington DC, USA. It has 191 member countries. While 191 nations participate in the institution and its global economic monitoring, any member experiencing balance of payments issues is eligible to become a beneficiary of its loans, financial assistance and technical support.
Pakistan officially joined the IMF on July 11, 1950. Since joining the Fund, Pakistan has sought IMF financial assistance a total of 25 times. As such, Pakistan and the IMF share a long-standing relationship of financial support and economic reforms, which has since evolved into a 37-month Extended Fund Facility (EFF) of approximately US $7 billion. The programme, which is due to be terminated next year, strictly focuses on maintaining fiscal discipline, broadening the tax base and restructuring state-owned enterprises (SOEs). The relationship has been marked by cyclical dependencies, with Pakistan seeking bailout packages to stabilize foreign exchange reserves and prevent sovereign defaults. The IMF office in Islamabad actively monitors ongoing progress. June is the last month of an outgoing financial year. As such, the federal and provincial budgets have to be presented, discussed and approved by the respective national and provincial legislatures before midnight of June 30, as the very next day, i.e., July 01, a new financial year gets underway in earnest.
The Federal Budget, with an outlay of Rs 18.77 trillion for the financial year 2026–27, was presented in the National Assembly on June 12 by Federal Finance Minister Senator Muhammad Aurangzeb and was in the final stages of approval by the national legislature. Broadly, defence spending has been increased in view of India’s continued hostilities and aggressive designs. The Federal Public Sector Development Programme (PSDP) has been squeezed to Rs 1,000 billion to meet IMF goals. The growth rate target has been fixed at just 4 percent. Salaries and pensions of serving and retired government servants have been increased by only 7 percent, without taking into consideration the upward trends in the cost of living. Minimum wages have been raised by 10 percent. Income tax rates for the salaried class have been reduced across all four tax slabs. The surcharge on the salaried class has been abolished. Imported vehicles above 3000cc and luxury electric vehicles have been taxed. Some sorts of subsidies have been cut by 5.7 percent.
The Federal Board of Revenue (FBR), the main tax-collecting and revenue-generating agency of the federal government, has been tasked to collect Rs 15.26 trillion. Rs 150 billion will be collected through new or increased taxes. Another big chunk of Rs 5.34 trillion will be raised as non-tax revenue, mainly from petroleum and climate levies among others. A bulk of non-tax revenue of Rs 1.73 trillion will be generated through petroleum levies. The federal government, through the new budget, intends to borrow US $23.38 billion from bilateral and multilateral sources, foreign commercial banks, bilateral deposits and Naya Pakistan Certificates, besides the IMF in varying figures.
During the financial year 2026–27, the federal government will be transferring Rs 8.8 billion to four provinces—Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan—under the National Finance Commission. Contrary to all expectations, the 11th NFC, set up in August 2025, failed to finalize its recommendations; the 7th NFC Award has been extended by another year. The then President Mamnoon Hussain had ordered amendments to the Distribution of Revenues and Grants-in-Aid Order 2010, which came into force from July 01, 2015 and has accordingly been extended from year to year since then in the absence of any new NFC Award for almost ten years.
(The federal government has announced a number of welfare and relief measures and initiatives in its budget for the next financial year. These measures and initiatives are both realistic as well as unrealistic. The meagre 7 percent increase in salaries and pensions of serving and retired public servants is quite unrealistic, to say the least. A huge increase in the salaries of those treading the corridors of power in the federal and provincial capitals some months ago is still fresh in the memories of a large number of people at large. Since serving government servants enjoy a number of privileges and perks such as residential and conveyance facilities, a majority of retired public servants lack these facilities. As the federal budget is in its final stages of approval, PM Muhammad Shehbaz Sharif is requested to at least upwardly revise the pension increase for retired public servants to around 20 percent, if not more. It is just unfair to treat serving and retired government servants at the same level.) More about the Federal Budget 2026–27 later from time to time, as it has many aspects which cannot be covered in one go.
—The writer is Lahore-based freelance journalist, columnist and retired Deputy Controller (News), Radio Pakistan, Islamabad.
