Pakistan Prioritizes Defence Spending as IMF Demands Budget Cuts Elsewhere

Date: May 23, 2025 | By: NewsMakers Monitoring Desk

In view of ongoing regional tensions, the Government of Pakistan has decided to increase its defence budget in the upcoming fiscal year. Defence remains the only sector exempt from spending cuts, while all other areas face stringent conditions set by the International Monetary Fund (IMF).

Sources reveal that negotiations with the IMF have failed to secure significant relief for salaried individuals, property owners, the beverage industry, and exporters. The IMF has made it clear that tax collection targets will only be accepted if the government significantly reduces its overall expenditures.

The IMF delegation, led by Jihad Azour, Director of the Middle East and Central Asia Department, is set to conclude its visit today (Friday). During the discussions, Prime Minister Shehbaz Sharif and his economic team requested the deferment of proposed new taxes—such as an increase in federal excise duty on fertilizer from 5% to 10% and a new 5% tax on pesticides. Approval of this request is expected.

Before the Finance Bill 2025 is passed into law, all conditions will be finalized with the IMF to minimize political criticism during the budget’s approval. A senior government official confirmed that in the coming years, revenue collection will play a decisive role in shaping Pakistan’s economic direction.

The Federal Board of Revenue’s (FBR) tax collection target for the next budget is expected to exceed PKR 14.1 trillion, contingent on the Ministry of Finance’s ability to reduce its spending proportionately. However, the defence budget will remain unaffected and is set to be increased to meet national security needs.

Another opportunity for reducing expenditures lies in managing debt repayments. The Ministry of Finance and IMF have estimated debt servicing at PKR 8.7 trillion, but efforts are underway to bring this down to between PKR 8 and 8.2 trillion.

The IMF has also called on provincial governments to cut their expenditures and boost revenue generation to help limit the national fiscal deficit.

Additionally, a government official confirmed that Pakistan has arranged \$1 billion in commercial financial support within the current fiscal year (by June 2025), which is expected to bolster the country’s foreign exchange reserves.