Pakistan’s latest negotiations with the International Monetary Fund (IMF) have entered a crucial stage, with both sides now working through a draft Memorandum of Financial and Economic Policies (MEFP). The document outlines the economic measures and commitments that could pave the way for a staff-level agreement between Pakistan and the Fund.
The IMF review mission is expected to remain in Islamabad until around the middle of next week. If Pakistani authorities and the Fund reach consensus on the outstanding issues, a staff-level agreement could be announced. Any unresolved matters could continue to be discussed remotely after the mission departs.
Power Sector Remains a Major Concern
One of the key challenges in the negotiations is Pakistan’s power sector. The country’s circular debt stock reached approximately Rs1.675 trillion at the end of June 2026, exceeding the agreed target.
The government has allocated around Rs830 billion in electricity-sector subsidies for FY2027. However, the IMF is seeking a significant change in the way these subsidies are provided.
Under the proposal, cross-subsidies for electricity consumers using up to 200 units could be phased out from January 2027. Instead of providing broad-based support through electricity tariffs, the IMF wants assistance to be directed toward deserving households through the Benazir Income Support Programmed (BISP).
The proposed shift would move Pakistan toward a more targeted subsidy system, although its implementation could become an important part of the discussions between the two sides.
FBR Tax Target Stays at Rs15.264 Trillion
Revenue collection is another important component of the IMF programmed. Despite the challenges facing the economy, the Federal Board of Revenue’s (FBR) annual tax collection target has remained unchanged at Rs15.264 trillion for FY2027.
The FBR reportedly collected Rs27 billion more than its first-quarter target. At this stage, the tax authority has not requested a reduction in its full-year target.
Meeting the ambitious revenue goal will nevertheless remain important because higher tax collection is central to the government’s efforts to improve its fiscal position and meet IMF commitments.
IMF Sees a Wider Current Account Deficit
The two sides also have different estimates for Pakistan’s external financing requirements.
The IMF is reportedly working with a FY2027 current account deficit projection of as much as $4 billion. This is higher than the Finance Ministry’s estimate of approximately $2.7 billion.
Pakistan’s Annual Plan for 2026-27 has projected a current account deficit of around $3.6 billion under a scenario in which a Gulf ceasefire results in an agreement between the parties involved.
A prolonged regional conflict could create additional pressure on Pakistan’s external account. Higher international oil prices would increase the country’s import bill, while disruptions to Gulf trade could affect exports, services and remittance inflows.
Pakistan’s current account was already in deficit during the first two months of FY2027. According to State Bank of Pakistan data, the deficit stood at $543 million during July and August, compared with $853 million during the same period of the previous fiscal year.
Growth Expected Around 4%
Economic growth projections from the government and the central bank remain relatively close.
The government is targeting 4% GDP growth in FY2027, while the State Bank of Pakistan has placed its growth forecast between 3.5% and 4.5%.
The government’s projection assumes agriculture will grow by 3.6%, industry by 4.5%, and the services sector by 4.2%.
These targets will depend on a number of factors, including agricultural performance, industrial activity, energy availability, domestic demand and developments in the external sector.
Inflation Forecasts Differ
Inflation is another area where Pakistan and the IMF have somewhat different expectations.
The government has projected average consumer price inflation at 8.2% for FY2027. The IMF, meanwhile, expects inflation to remain somewhat higher, in the range of 8.5% to 9.5%.
The difference reflects uncertainty surrounding energy prices, food costs, exchange-rate movements and broader regional developments.
Sovereign Wealth Fund Legislation Also on the Agenda
Alongside the economic measures, legislation concerning Pakistan’s Sovereign Wealth Fund is expected to receive parliamentary approval.
The measure forms part of the broader set of structural and institutional reforms being discussed as Pakistan works to meet its commitments under the IMF programmed.
What Comes Next?
The latest round of negotiations is particularly important because the draft MEFP brings the discussions closer to a concrete agreement.
The main issues now include the management of power-sector circular debt, the structure of electricity subsidies, revenue collection, the size of the current account deficit and broader economic assumptions for FY2027.
A successful conclusion of the discussions would allow the IMF mission and Pakistani authorities to move toward a staff-level agreement. However, the final outcome will depend on whether both sides can resolve the remaining differences and agree on the policy measures contained in the MEFP.
For Pakistan, the negotiations come at a sensitive time. The government must balance fiscal consolidation and IMF commitments with the need to protect vulnerable households, maintain economic growth and manage risks from higher energy costs and regional instability.
The coming days are therefore likely to be critical for determining the next stage of Pakistan’s engagement with the IMF.