The International Monetary Fund (IMF) has urged Pakistan to strengthen the Finance Division’s capacity to lead and coordinate macro-fiscal forecasts, synchronize them with the budget cycle, and introduce a strategic phase to the budgeting process.
In its “Technical Assistance Report on Improving Budget Practices,” the IMF highlighted the fragmented structure of the Finance Division as a key obstacle to strategic budgeting. It recommended introducing a strategic budget phase aligned with the Public Financial Management Act of 2019, revising the Budget Call Circular to include binding ceilings, and addressing the dual budgeting system.
The Fund also advised reorganizing the Finance Division to focus on budgeting and management functions, creating a Public Financial Management (PFM) Digitalization Master Plan, and forming a high-level steering committee for implementation.
Pakistan’s current budgeting process lacks updated fiscal projections at the start of the budget cycle in January, relying instead on outdated data from the previous Budget Strategy Paper (BSP). The IMF suggested two approaches: moving the BSP release to January or incorporating preliminary macro-fiscal data into the Budget Call Circular.
The IMF noted that Pakistan faces significant fiscal challenges, with public debt rising by 16 percentage points of GDP between FY2017 and FY2023, interest payments consuming 60% of tax revenue, and persistent discrepancies between fiscal forecasts and actual outcomes.
To meet its medium-term goal of reducing debt-to-GDP from 74% to below 60%, Pakistan must address a primary deficit of 1.3% of GDP in FY2023 and achieve a surplus of 0.4% in FY2024. This requires strict expenditure restraint, additional revenue generation, and prioritization of social and development spending.
Additionally, the IMF called for improved coordination between the Economic Adviser’s Wing and the Budget Wing, enhanced scrutiny of budget proposals, and addressing gaps in specialized staff, tax policy, and debt management within the Finance Division.
