IMF Fiscal Monitor 2026: Pakistan Urged to Cut Fuel Subsidies to Stabilize Economy

The International Monetary Fund, in its latest Fiscal Monitor 2026 report, has projected Pakistan’s fiscal deficit to remain around 3.2 per cent of the gross domestic product. While the country has shown signs of stabilization, the global lender noted a slight decline in the primary surplus from 2.5 per cent, signaling a need for continued fiscal discipline. To achieve credible medium-term sustainability, the IMF has recommended the immediate phasing out of fiscally draining fuel subsidies and a significant broadening of the national tax base to capture untapped revenue streams.

​According to the biannual report, Pakistan’s revenue collection appears to have reached a peak, with a stable but downward outlook anticipated through 2031. Although this trend is expected to gradually lower the overall public debt, the IMF warned that current debt levels still exceed the limits mandated by the Fiscal Responsibility and Debt Limitation Act (FRDLA) of 2005. The Fund emphasized that government expenditures are likely to remain stubborn, making it imperative for Islamabad to address contingent liabilities and structural inefficiencies within the public sector.

​The IMF’s projections highlight a delicate balancing act for Pakistan as it navigates persistent inflationary pressures and high debt-servicing costs. By implementing the suggested reforms, including the removal of broad energy subsidies, the government can create the fiscal space necessary for social protection and infrastructure development. As the 2026 fiscal year progresses, the focus of international creditors remains on Pakistan’s ability to transition toward a more self-sustaining revenue model that reduces reliance on external borrowing and stabilizes the broader macroeconomic environment.