Pakistan’s provinces could receive some relief from their health and education spending obligations under the country’s ongoing programmed with the International Monetary Fund (IMF). The global lender is reportedly considering reducing the combined provincial spending target by around Rs300 billion, bringing it down from more than Rs4.2 trillion to approximately Rs3.9 trillion.
The possible revision comes as provincial governments struggle to balance social-sector spending with wider fiscal commitments. Under the current arrangements, provinces are expected to generate a combined cash surplus of Rs1.7 trillion and provide financial support to the federal government. These obligations have created additional pressure on provincial budgets.
Provinces Face a Spending Gap
Government officials have reportedly indicated that the provinces may once again fail to achieve the existing health and education spending target during FY27. Their budget allocations for the two sectors are collectively around Rs500 billion below the current IMF requirement.
Even if the IMF lowers the target to Rs3.9 trillion, provinces could still face a shortfall of approximately Rs200 billion. This means that a reduction in the target would ease some pressure but would not completely resolve the gap between required and budgeted spending.
The proposed revision is not yet final, and further discussions between the IMF and provincial authorities are expected before a decision is reached.
Punjab and Sindh Highlight Fiscal Constraints
Punjab and Sindh have reportedly raised concerns about their ability to maintain higher spending on health and education while meeting their commitments to support the federal government’s fiscal position.
For FY27, Punjab has allocated around Rs1.3 trillion for health and education from its provincial budget of approximately Rs5.9 trillion. Sindh has set aside about Rs1.1 trillion for the two sectors, while Khyber-Pakhtunkhwa has allocated more than Rs800 billion. Balochistan’s combined allocation stands at around Rs268 billion.
Khyber-Pakhtunkhwa, which has not committed to providing grants to the federal government in the same way, has reportedly assured the IMF that it will meet its health and education spending commitment.
Why the IMF Target Matters
Health and education spending is currently classified as an indicative target under Pakistan’s $7 billion IMF programmed. Although missing an indicative target does not carry the same consequences as breaching a formal performance criterion, the IMF has previously considered strengthening the requirement.
If the target were converted into a quantitative performance criterion, failure to meet it could require Pakistan to seek a waiver from the IMF Executive Board.
Pakistan has already struggled to meet the target. Combined provincial spending on health and education reportedly fell about Rs370 billion short of the IMF requirement in the previous fiscal year.
Pressure From the Wider Fiscal Adjustment
The debate over health and education spending is part of a much larger effort to stabilize Pakistan’s finances. The federal government has been relying on provincial fiscal surpluses and other measures to meet its overall fiscal targets.
Under the agreed arrangements, the federal and provincial governments are expected to provide Rs1.036 trillion in cash grants, provided the Federal Board of Revenue achieves its annual tax collection target of Rs15.263 trillion.
At the same time, development spending has also come under pressure. The federal government reduced its Public Sector Development Programmed by Rs126 billion to Rs1 trillion, while Punjab reduced its development spending allocation by Rs150 billion.
What Comes Next?
The IMF review is focused on finalizing a consensus draft of the Memorandum of Economic and Financial Policies. The outcome of the discussions will determine whether the proposed changes to provincial spending targets are accepted.
If Pakistan and the IMF reach a staff-level agreement and the review receives approval from the Fund’s Executive Board, Pakistan could unlock around $1 billion under its existing IMF programmed. The country could also receive more than $200 million through the climate financing facility.
For Pakistan’s provinces, however, the central challenge will remain the same: finding enough fiscal space to meet IMF commitments while continuing to finance essential services such as healthcare and education. Any reduction in the target could provide temporary breathing room, but provincial budgets will still have to balance social-sector needs with the country’s broader fiscal consolidation requirements.