ISLAMABAD: Pakistan is expected to maintain tight fiscal discipline in its FY27 federal budget next month to stay aligned with International Monetary Fund targets, despite pressure to provide tax relief and rising risks from the Iran conflict and elevated global oil prices, a brokerage report said on Tuesday.
The government is expected to present the federal budget on June 5 as Pakistan continues implementing reforms under a $7 billion IMF bailout program approved in September 2024. Islamabad has relied on the IMF program to stabilize an economy battered in recent years by high inflation, a balance of payments crisis and dwindling foreign exchange reserves.
At the same time, policymakers are facing growing external risks from the conflict involving Iran, which analysts say could push oil prices higher and strain Pakistan’s fragile economic recovery. Pakistan imports much of its energy needs, making the economy highly vulnerable to sustained increases in global crude prices.
Analysts at Topline Securities said the government was likely to prioritize fiscal consolidation and revenue collection over broad relief measures in order to meet IMF-linked targets, including improvements in the tax-to-GDP ratio and maintenance of a primary budget surplus.
“We expect the government to maintain its fiscal consolidation path, targeting a fourth consecutive year of primary surplus along with a further 50–60bps improvement in the tax-to-GDP ratio,” the Topline report said.
It said the IMF had raised the floor on Pakistan’s Federal Board of Revenue collections and projected FY27 tax revenues of Rs15.3 trillion ($54.1 billion), up 14% from the revised FY26 target.
Analysts said the government was also considering limited relief for salaried taxpayers, including wider income tax slabs or lower rates, although such measures could increase pressure to find additional revenue elsewhere.
The report said Islamabad’s revenue strategy was expected to focus on broadening the tax base, reducing exemptions and tightening enforcement against non-compliant taxpayers rather than imposing sweeping new taxes.
Topline projected Pakistan’s GDP growth target at 4.1% for FY27, though it warned the outlook could weaken if geopolitical tensions persist.
“We think if Iran conflict continues and oil remains around US$100/barrel, Pakistan GDP growth could remain around 3.0-3.5% and inflation at 8-8.5% for FY27,” the report said.
The report said the FY27 budget was likely to remain broadly neutral for Pakistan’s stock market in the short term, though investors could view continued adherence to IMF reforms positively over the longer term.
