ISLAMABAD: The federal government is expected to impose strict austerity measures in the upcoming fiscal year 2025–26 budget, primarily by significantly cutting the Public Sector Development Programme (PSDP), in line with the conditions of the International Monetary Fund (IMF), senior officials confirmed on Monday.
According to sources within the Ministry of Planning and Development, the federal government is likely to allocate Rs3 trillion for development projects in the next fiscal year — a drastic reduction when compared to the Rs12 trillion estimated to complete ongoing projects.
Officials revealed that the Finance Ministry has yet to commit to the full Rs3 trillion requested by the Planning Ministry. The reduced funding reflects the government’s strategy to prioritise completion of ongoing schemes over launching new initiatives.
“The next PSDP will be tightly focused. Only a few new but essential projects will be accommodated, and the emphasis will be on wrapping up work on projects that are already in progress,” a source said.
For the current fiscal year, officials believe that even the existing development funds may not be fully utilised, reinforcing concerns about capacity constraints and possible financial bottlenecks.
This significant budget tightening is part of broader negotiations between Pakistan and the IMF as Islamabad seeks to secure a new multi-billion-dollar loan programme. These talks have not only impacted development spending but also affected taxation policy.
As budget preparations continue, high-level consultations are underway regarding possible tax relief for salaried individuals and the real estate sector — both of which will require IMF approval before any changes can be implemented.
One key proposal under discussion is the elimination of the 3% Federal Excise Duty (FED) on property sales. The move is seen as a potential stimulus to the real estate market, which has been under pressure from tightening fiscal policies.
For the salaried class, proposals include raising the annual income tax exemption threshold, currently set at Rs600,000. Adjustments to income tax slabs are also being considered. However, insiders clarified that any such relief will be “subject to the IMF’s green signal.”
Earlier reports indicated that the government had already ‘linked’ any potential tax relief in the FY2025–26 budget to the IMF’s approval, underscoring the lender’s growing influence on Pakistan’s fiscal policy.
The final budget is expected to reflect a delicate balance between the government’s development goals, public relief measures, and the stringent demands of the IMF.
