Zafar Iqbal
Pakistan’s relationship with the International Monetary Fund has always resembled a recurring nightmare. The country enters a programme with hope, endures conditions that punish ordinary citizens, and eventually finds itself returning to the same creditor with the same structural weaknesses intact. The IMF mission that visited Pakistan from 13 to 20 May 2025 offers yet another chapter in this exhausting cycle, and independent economists who have studied the resulting press release believe the signs are deeply troubling for the common man’s kitchen budget.
The IMF mission’s stated purpose was narrow and technical. According to the Fund’s own press release, the staff visit focused on recent economic developments, reform implementation, and the budget strategy for fiscal year 2027. This was not a mission to initiate a staff-level agreement on the fourth review of the ongoing seven-billion-dollar Extended Fund Facility or the third review of the Resilience and Sustainability Facility. It was not convened for Article IV consultations. It came, in the blunt language of programme conditionality, to approve the budget before Pakistan’s parliament sees it. Independent domestic economists have concluded that an agreement was effectively reached between Pakistani authorities and Fund staff regarding expenditure and revenue allocations, with the budget presentation to the National Assembly anticipated around 5 June, subject to cabinet availability.
This sequencing is itself a statement about sovereignty. A national budget, which is constitutionally the parliament’s most sacred prerogative, is being shaped in bilateral discussions with a foreign creditor before elected representatives have any meaningful input. The IMF’s visit functions as a prior condition dressed in diplomatic language.
On the fiscal numbers, the press release confirms that the government remains committed to achieving a primary surplus of 2 percent of GDP in fiscal year 2027, excluding grants. This target was already flagged in the third review documents. The current year’s programme target of 3.4 percent was marginally missed, coming in at 3.5 percent. The slight overshoot might appear reassuring to a casual reader, but the more revealing figure lies beneath the headline. The underlying primary balance, which excludes one-off transactions, stood at only 1.6 percent against a programme target of 1.3 percent for the current year, with 2 percent projected for the next fiscal year.
What does this mean in practice? Two enormous transactions have been quietly excluded from this calculation. First, the government borrowed 1.25 trillion rupees to retire the energy sector’s circular debt, with interest payments on that borrowing now to be passed directly onto consumers through higher electricity and gas tariffs. Second, the sale of Pakistan International Airlines has generated only 10 billion rupees for the treasury, with the remaining balance of over 125 billion rupees to be contributed as equity into the airline at some future point with no deadline specified. These are not minor accounting footnotes. They are structural burdens that will press down on ordinary Pakistanis through higher utility bills and deferred public liabilities for years to come.
The IMF’s revenue mobilisation agenda, outlined in the third review documents, deserves particular scrutiny. Three instruments are being pursued. The first involves eliminating sales tax expenditures and improving the GST collection efficiency ratio, which has declined sharply from 27.4 percent to 22.8 percent over the past decade. The GST collection efficiency ratio measures how effectively a country collects its goods and services tax compared to what would theoretically be collected if the standard rate applied universally to all consumer spending without exemptions or losses. Raising this ratio means reducing exemptions and plugging leakages, which sounds technically neutral but translates into higher prices on basic goods. Sales tax is an indirect tax. Its burden falls more heavily on the poor than on the wealthy, because poorer households spend a greater proportion of their income on taxable consumption.
The second instrument is improving compliance through more aggressive application of the Federal Board of Revenue’s audit function. This is a long-overdue reform and deserves support, provided it targets the genuinely wealthy and the systematically non-compliant rather than adding compliance burdens onto the already documented middle class. The third instrument involves increasing provincial revenues primarily by implementing agriculture income tax at the same rate applied to all other income sources. This reform is constitutionally sound and long overdue. Pakistan’s large landowners have historically enjoyed near-total tax immunity while salaried workers face deductions at source. Whether the provinces, many governed by landed interests, will implement this reform meaningfully or cosmetically remains the central question.
The monetary dimension of the IMF’s prescription is equally concerning. The State Bank of Pakistan reiterated its commitment to maintaining a tight monetary policy stance to anchor inflation expectations, while the press release called for continued exchange rate flexibility and deeper foreign exchange interbank market development. Pakistan’s policy rate currently stands at 11.5 percent, a level that compares extremely unfavourably with regional competitors. This rate is expected to rise further. Every increase in the policy rate amplifies the debt service component of the federal budget, which already consumes the largest single share of government expenditure. Higher debt servicing crowds out development spending, reduces fiscal space, and forces harder choices between schools and interest payments. Simultaneously, elevated borrowing costs suppress private sector credit, restrain investment, and ultimately slow economic growth. Slower growth means higher unemployment. Higher unemployment raises social stress and political instability, which in turn increases the risk of programme derailment. The IMF’s own conditionality, in other words, contains within it the seeds of programme failure.
One must acknowledge that Pakistan’s structural economic weaknesses are self-inflicted. Decades of tax evasion by powerful elites, energy sector mismanagement, and political resistance to reform have created the dependency that now allows a foreign institution to effectively co-author the national budget. The IMF did not create Pakistan’s circular debt or its agriculture tax exemptions. Pakistani decision-makers did.
But acknowledgment of self-inflicted wounds does not make the medicine less bitter for those who bear no responsibility for the disease. The budget that emerges from these discussions will be presented to parliament as a sovereign fiscal document. In reality, its broad architecture was settled in meetings where no elected Pakistani had a decisive voice.
The common man will feel the consequences in rising utility bills, higher indirect taxes, constrained employment, and shrinking public services. Indications, as independent economists warn, point to an extremely harsh budget for ordinary Pakistanis. That harshness deserves to be named plainly, not buried in the language of fiscal consolidation and programme compliance.
