Dr Bilawal Kamran
Amid slow disbursements of foreign loans from international creditors, Pakistan is preparing for the International Monetary Fund (IMF) review mission scheduled for the first week of March. This review will focus on the $7 billion Extended Fund Facility (EFF) that Pakistan is under.
The successful completion of the first review of the IMF-sponsored program is seen as crucial, as Islamabad will need to seek waivers for unmet conditions. A significant challenge will be achieving a broader consensus with the IMF on the key aspects of Pakistan’s budget for 2025-26. If both parties fail to agree on the terms, the completion of the review could be linked to the approval of the budget by Pakistan’s parliament. The review process is expected to culminate in the approval of a $1 billion tranche by the IMF Executive Board in April 2025.
Foreign loan disbursements to Pakistan during the first seven months (July to January) of the 2024-25 fiscal year have been slower than expected, with a total of $4.5 billion disbursed, compared to $6.7 billion during the same period last year. This shortfall in disbursements comes despite the inclusion of IMF loans, which pushed total foreign loan inflows to $5.5 billion. However, this amount remains far below the projected $19 billion in foreign loan disbursements for the entire fiscal year.
The IMF review mission is scheduled to visit Islamabad at a time when Pakistan’s current account has shifted from a surplus to a deficit. In January 2025, the country posted a deficit of $420 million month-on-month (MoM), further adding pressure on Pakistan’s financial situation.
The government is also grappling with some unmet IMF conditions, including delays in the approval of the Agriculture Income Tax (AIT). Although four provincial assemblies have passed the relevant legislation, the deadline for approval was not met. Other legislative measures related to the Wealth Fund and Asset Declaration Scheme are also pending. Additionally, the Tajir Dost Scheme (TDS), designed to boost tax compliance among retailers, has not delivered the expected results, even though the Federal Board of Revenue (FBR) has reported an increase in the number of retailers filing tax returns this fiscal year.
In terms of foreign loans, Pakistan received a total of $4.584 billion in foreign disbursements during the first seven months of the current fiscal year. Of this amount, multilateral creditors provided $2.32 billion, with the Asian Development Bank (ADB) being the largest contributor, disbursing $1.04 billion. Other contributors included China’s commercial banks, which provided $306 million, and the World Bank’s International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD), which provided $573.8 million and $201.5 million, respectively.
On the bilateral front, Pakistan received $329.1 million in loans, with China, France, Germany, Japan, Korea, Saudi Arabia, and the US all contributing varying amounts. China was the largest bilateral lender, providing $99.17 million, while France contributed $102.5 million.
Pakistan had hoped to raise $1 billion through an international bond issue, but it was unable to launch the bond as planned. Instead, the government secured a $500 million commercial loan and generated $1.126 billion through the Naya Pakistan Certificate during the first seven months of the fiscal year.
With the IMF review mission set to visit Pakistan in early March, the country’s ability to meet IMF conditions and secure the approval of the budget for 2025-26 will be pivotal in determining whether the loan program continues smoothly. If both sides cannot reach an agreement, it could delay the much-needed $1 billion tranche and further complicate Pakistan’s financial situation as it strives to meet its loan disbursement targets for the year.
