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.

Earlier, the International Monetary Fund (IMF) urged Pakistan to increase tax revenues by Rs430 billion to set an ambitious Rs14.3 trillion tax collection target for the upcoming 2025–26 federal budget.

The IMF emphasized the need for urgent action to broaden the tax base, including swift resolution of tax-related court cases and the implementation of stronger enforcement measures.

The Fund proposed a significant increase in tax revenue, suggesting that Pakistan set a tax collection target of Rs 14.3 trillion for the next fiscal year with an additional taxes of Rs 430 billion to be generated through new taxation measures.