Pakistan and IMF Set to Revise Budget Targets as Flood Losses Mount

Pakistan and the International Monetary Fund (IMF) are preparing to recalibrate the country’s fiscal framework for the current year, as the economic fallout from recent flash floods becomes clearer and more severe than initially estimated. The GDP growth target, originally set at 4.2 percent, is now under downward pressure. Early assessments had suggested the floods might trim growth to 3.9 percent, but updated figures indicate the impact could be even more pronounced, with losses potentially shaving off 0.6 to 1 percentage point from the growth rate. “The initial assessment only covered damages up to mid-September, but the situation has since deteriorated,” a senior official told The News. The Rapid Need Assessment (RNA) conducted by provincial authorities now puts the total losses at around Rs. 650 billion across all four provinces, a sharp increase from the earlier estimate of Rs. 371 billion. However, these figures remain provisional, as a consortium of international donors, including the World Bank, the Asian Development Bank, the European Union, and the United Nations Development Programme, has yet to validate the provincial estimates. “There are still gaps in the data, and the final tally could be even higher,” the official added. Against this backdrop, Pakistan and the visiting IMF review mission are working to finalize a revised budgetary framework, a key step toward unlocking the next tranche under the $7 billion Extended Fund Facility (EFF) and the Resilience Sustainability Facility (RSF). Under the new framework, the Federal Board of Revenue’s (FBR) tax collection target is expected to be revised downward from Rs. 14.13 trillion to Rs. 14.001 trillion, with non-tax revenue targets also set for a cut. The provinces had previously committed to generating a revenue surplus of Rs. 1,465 billion for the year. Still, the anticipated dip in FBR collections will likely have a knock-on effect on these projections. On the expenditure side, the government is expected to make internal adjustments rather than announce public cuts to the Public Sector Development Programme (PSDP), which remains at Rs. 1 trillion. Instead, officials say, the release of PSDP funds may be slowed in the first half of the fiscal year to help contain the fiscal deficit and maintain the primary surplus target of 2.4 percent of GDP. Some development projects, such as the FBR’s digitization initiative, including the installation of new equipment at border points, will continue to receive funding, with Rs. 20 billion earmarked for these efforts.