The International Monetary Fund (IMF) has urged Pakistan to gradually phase out federal funding for provincial development projects under the Public Sector Development Programme (PSDP).
According to sources, the IMF made this demand during virtual discussions with provincial governments, focusing on expenditure plans for the 2025-26 fiscal budget, with provinces actively participating in these sessions.
The IMF proposed that provinces eliminate their dependence on federal funds by independently raising resources, including enforcing an income tax on agricultural earnings exceeding PKR 600,000 annually starting July 1, 2025, without exemptions.
The IMF expressed satisfaction with the economic performance of both federal and provincial governments in the current fiscal year and secured commitments from provinces for a budget surplus in the next fiscal year.
An IMF delegation is set to arrive in Islamabad on May 18, 2025, to advance budget negotiations. The team will engage with officials from the Ministry of Finance, Planning Commission, Federal Board of Revenue (FBR), and State Bank of Pakistan.
