This represents a 19.29% increase from the Rs1.804 trillion allocated for the current fiscal year. The Fund made the forecasts in the second and final review documents of the Stand-By Arrangement.

Pakistan last month completed a nine-month $3 billion programme, which helped stave off sovereign default, but the government of Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer-term programme.

The short-term programme, aimed at addressing domestic and external imbalances, has yielded positive results, including moderate economic growth, improved fiscal position, and increased foreign exchange reserves, according to the IMF.

Challenges remain, including high inflation, which is expected to reach around 20% by June 2024 the lender said and recommended maintaining a tight monetary policy to control inflation and further strengthen the financial sector.

Pakistan’s defence allocation is projected to be 1.72% of its gross domestic product (GDP) in FY25. The lender expects Pakistan’s nominal GDP to reach Rs124.813 trillion in the next fiscal year, up from Rs106.577 trillion in the current year.

In addition, the IMF has forecast Pakistan’s total current expenditure (federal and provincial) to rise by 15.09% to Rs22.037 trillion in FY25, compared to Rs19.146 trillion budgeted for the ongoing fiscal year. Federal current expenditure is projected to grow by 14.8% to Rs16.712 trillion, accounting for 13.3% of the GDP.

The IMF has also projected a 13.7% increase in interest payments, which are expected to reach Rs9.787 trillion in FY25 versus Rs 8.602 trillion in the current fiscal year.

Development expenditure and net lending are forecast to increase by 22.67% to Rs 2.673 trillion in FY25, up from Rs2.179 trillion in the current year.

The Public Sector Development Program is expected to grow by 22.86% to Rs2.590 trillion in the next fiscal year, with the federal component reaching Rs 890 billion and the provincial component Rs 1.700 trillion.

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In its staff report earlier this week, the IMF acknowledged Pakistan’s economic improvement, however, it warned that the outlook remains challenging, with downside risks remaining exceptionally high.

The country narrowly averted default last summer, and its $350 billion economy has stabilised after the completion of the last IMF programme, with inflation coming down to around 17% in April from a record high of 38% last May.