IMF imposes 11 new structural benchmarks on Pakistan

ISLAMABAD: The International Monetary Fund (IMF) has slapped 11 new structural benchmarks (SBs) on Pakistan including developing and publishing a comprehensive medium-term (3 to 5 years) tax reform strategy, asset declarations of high-level federal civil servant and action plan to mitigate corruption vulnerabilities in identified departments.

The Fund in its report “Second review under the extended arrangement under the extended fund facility, first review under the resilience and sustainability facility, request for a waiver of non-observance of a performance criterion, and modification of performance criteria”, noted that eight of 13 SBs were met, including those on approval of the fiscal year 2026 budget in line with program targets, the implementation of the new agricultural income tax, and the amendment of the Civil Servants Act to enhance public officials’ asset declarations.

It further stated that 11 new benchmarks have been set.

The SBs on fiscal side include; (1) finalize a roadmap by end-December 2025 that includes at least: (i) prioritization of key reform areas; (ii) staffing requirements and roles; (iii) specific timelines and milestones; (iv) revenue impact estimates; and (v) key performance indicators (KPIs) to monitor progress and outcomes (e.g. the number of audits, number of transactions covered by digital invoicing, etc.). Based on the roadmap, complete all actions necessary to fully implement at least three priority areas agreed with IMF staff, including any required subordinate legislation, staff hiring and allocation, and initial KPI reporting Enhance the effectiveness of the FBR (end-March 2026); (2) develop and publish a comprehensive medium-term (3 to 5 years) tax reform strategy that includes at least: (i) a sequenced roadmap of tax policy, administration, and legal reforms; (ii) clear governance arrangements; and (iii) a resource plan for implementation. The rational is to strengthen the predictability and sustainability of tax revenue (end-December 2026)

On governance SBs include; (1) publish in a government website the asset declarations of high-level federal civil servant in line with the June 2025 legislative amendments to enhance transparency and accountability (end-December 2026), (2) publish an action plan to mitigate corruption vulnerabilities in identified departments based on an institutional-level risk assessment. Identify and mitigate severe corruption vulnerabilities (end-October 2026).

On monetary and financial SBs include; (1) complete a comprehensive assessment of remittance costs and structural impediments to cross-border payments, complemented by an action plan to boost FX inflows sustainably (end-May 2026), (2) conduct a comprehensive study of the bottlenecks for local currency bond market development and publish a strategic action plan to address areas of improvement with the rational to develop financial markets and diversify the investor base (end-September 2026).

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On energy sector (SBs) include; (1) finalize preconditions for the private sector participation processes for HESCO and SEPCO. Improve DISCO management and efficiency (end-December 2026).

The SBs on State-Owned Enterprises include; (1) the government will sign public service obligations (PSO) agreements with each of the 7 largest PSOs before submission to Parliament of the FY27 budget, in line with updated manuals and guidelines in accordance with the SOE Act and Policy. The rational is to improve transparency and costing of public obligations (end-June 2026).

On Trade, Investment Policy, and Deregulation, the SBs include; (10 federal and provincial governments will agree and the federal cabinet will adopt a national policy for sugar market liberalization containing key recommendations on licensing, price controls, import/export permissions, and zoning, and clear timelines for implementation.

The rational is to liberalize commodity markets (end-June 2026); (20 prepare and submit to parliament legislative amendments to the Companies Act, 2017 to strengthen compliance for unlisted firms, modernize corporate governance structures, and align corporate regulations with international best practices to reduce regulatory uncertainty, enhance transparency, and support capital market development (end-June 2026); (3) prepare and publish a concept note defining the scope, objectives, and expected outcomes of legislative amendments to the SEZ Act, including the rationale for reform, proposed KPIs, and the shift from profit to cost-based incentives. The rational is to improve efficiency and provide a level playing field for investment (end-June 2026).

The report noted that two continuous SBs, on not seeking ex-ante parliamentary approval for any non-budgeted expenditures and the maximum average premium between the interbank and open market rates, were also met. The SB on publication of the Governance and Corruption Diagnostic (GCD) was not met but has been completed as a Prior Action.

The related SB on publication of the action plan based on the GCD’s recommendations was, in turn, not met; it is proposed to be reset for end-December 2025. The SB on the preparation of a plan to phase out SEZs was missed but subsequently implemented in October 2025.

The SB on amendment of the laws on remaining statutory SOEs was not met, partly due to delays in the legislative process, and is proposed to be reset for end-August 2026. The continuous SB on avoidance of tax exemptions was missed due to exemptions applied to sugar imports; this has been addressed via the authorities’ commitment to deregulate the sugar sector (new end-June 2026 SB).

The end-June SB on the introduction of an excise duty on fertilizer and pesticides was missed, as the authorities sought to prevent excessive burden on the agricultural sector in the context of implementation of several ongoing reforms in the sector—and the recent floods have added to the challenges— but will be implemented as a contingency measure in the event of a revenue shortfall.

The report noted that both RMs due under the first RSF review – related to the adoption, with the fiscal year 2026 finance bill, of a (i) carbon levy and (ii) the introduction of an electric vehicle subsidy and internal combustion engine vehicle tax – were met.

The Pakistani authorities have stated that they continue making progress on amending SOE-dedicated laws and expect to complete the process by August 2026, for which we request resetting the SB. They missed the SB on the introduction of Federal Excise Duty (FED) on fertilizer and pesticides to prevent an excessive burden on the agricultural sector at a time of several ongoing reforms in the sector, as well as the recent floods.

That said, the authorities stated that they are committed to implementing it as a contingency measure in case of a revenue shortfall. To forestall a shortage of sugar, partly related to low yields in the previous season, we expedited emergency imports via an SOE and exempted these imports from taxes and duties, thereby missing the continuous SB on the avoidance of tax exemptions, but have committed to deregulate the sugar sector. The publication of the Governance and Corruption Diagnostics (GCD) report was delayed due to the need for thorough consultations with government agencies, and has been completed as a prior action.

Therefore, we request resetting the SB on the preparation of an action plan for its implementation to end December 2025. Also as a prior action for this review, for any undercapitalized bank as of March 2025 that fails to become capital compliant to SBP’s satisfaction, we will exercise our authority under the Banking Companies Ordinance to issue a written order placing the bank under resolution and begin implementing a resolution plan to restructure, wind up, or merge the bank with a healthy institution. Finally, good progress was made on the RSF Reform Measures (RMs) as we introduced a carbon levy (RM9) and a revenue-neutral EV subsidy scheme (RM10), all part of the FY26 Finance Act”, Pakistani authorities added.

Performance Criteria (PCs); The authorities met six of the seven quantitative PCs for end-June 2025: the floors on (i) the net international reserves of the SBP; and (ii) the number of new tax returns; and the ceilings on (iii) the net domestic assets of the SBP; (iv) the SBP’s stock of net foreign currency swaps/forward position; (v) the general government primary budget deficit; and (vi) the amount of government guarantees. The end-June 2025 QPC floor on total BISP spending was narrowly missed, by PRs 463 million (0.1 percent, 0.0004 percent of GDP) due to savings on administrative costs, while spending on core support programs was higher than expected. A waiver of non-observance on the QPC is requested on the basis of the non-observance being minor and temporary.

Indicative targets (ITs). Four ITs were met at end-June 2025, including the floors on (i) the weighted average time-to-maturity of the local currency domestic debt securities stock; (ii) the consolidated net tax revenues collected by provincial revenue authorities; and (iii) income tax revenues collected by the FBR from retailers; and (iv) the ceiling on power sector payment arrears.

However, end-June 2025 ITs were missed for the floors on (i) general government budgetary health and education spending; and (ii) net tax revenues collected by the FBR; and for the ceilings on (iii) the aggregate provincial primary budget deficit; and (iv) the net accumulation of tax refund arrears.

Copyright Business Recorder, 2025