ISLAMABAD: As Pakistan welcomes a nine-member IMF delegation for the first biannual review of its $7 billion Extended Fund Facility (EFF), the government remains hopeful about successfully concluding talks that would unlock a $1.1 billion installment within the next three weeks.
The IMF mission, led by Nathan Porter, will assess Pakistan’s compliance with fiscal and structural targets under the 37-month program from March 3 to 14. Officials acknowledge minor delays in meeting certain technical targets, but they emphasize that these have been addressed. The review will primarily focus on the first half of the current fiscal year (July–December 2024), where initial shortfalls have now been covered.
One of the key concerns during the review is Pakistan’s revenue shortfall, which fell short of program targets. However, the government asserts that this gap has been offset by a higher-than-expected primary budget surplus and a stronger revenue-to-GDP ratio, driven by non-tax revenues such as central bank profits, petroleum levies, and telecom earnings.
Despite these adjustments, Pakistan’s economy faces hurdles, including lower-than-estimated cotton and wheat production and weak industrial performance, leading to reduced revenue collections. The IMF recently revised Pakistan’s GDP growth forecast for the current fiscal year to 3%, down from its earlier 3.2% projection in September 2024.
On the positive side, the government has successfully extended the average debt maturity period beyond 39 months, mitigating immediate debt repayment risks. This was achieved by utilizing surplus cash and shifting short-term debt into longer-term financial instruments.
Officials also highlight overperformance in key areas, which could help compensate for minor underperformances in meeting IMF conditions. However, the expansion of the tax net in the retail sector and the long-pending amendment to the Sovereign Wealth Fund (SWF) law remain pressing concerns.
In preparation for the upcoming Public Sector Development Programme (PSDP), the Ministry of Planning has outlined strict selection criteria for new projects. Key priorities will include strategic infrastructure projects, ongoing projects nearing 80% completion, foreign-funded initiatives with adequate financial backing, development projects in Pakistan’s 20 least-developed districts, and climate-resilient and sustainability-focused projects
Meanwhile, a crucial structural benchmark under the IMF program mandates amendments to the Civil Servants Act, 1973, by February 2025. This will require public officials (BPS 17–22) to digitally declare assets, including foreign holdings, in a publicly accessible database, while ensuring data protection measures.
The IMF has reaffirmed its objective of raising Pakistan’s tax-to-GDP ratio by 3%, improving tax compliance, and expanding the tax base. The government is under pressure to:
Bring retailers, property owners, and agricultural income into the tax net
Reduce tax exemptions and streamline corporate and personal income tax rates
Enhance Federal Excise Duty coverage and eliminate tariff exemptions
Pakistan’s ability to meet these structural reforms will play a crucial role in securing the next tranche of IMF funding, stabilizing the economy, and ensuring long-term financial sustainability. As negotiations progress, all eyes are on whether the government can effectively navigate fiscal challenges and gain IMF approval for the next phase of economic reforms.
