The International Monetary Fund (IMF) in its second review of the ongoing Extended Fund Facility (EFF) and the first review of the Resilience and Sustainability Fund (RSF) documents noted that the “The Structural Benchmark (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.”
This, without doubt, may be the major stumbling block to the next staff level agreement as the recommendations on which the action plan would be based are extremely politically challenging on three counts: (i) the right to information (RTI), with legal foundation, has yet to deliver, and the report cited the following entities, headed by influentially powerful ministers, where RTI were either left pending or simply closed: Capital Development Authority (21 under process with 68 closed), NADRA 20 under process and 66 closed, Ministry of Interior 26 under process and 40 closed, National Accountability Bureau (16 under process and 43 closed), Ministry of Information and Broadcasting (21 under process and 38 closed), Federal Investigation Agency (15 under process and 43 closed), Federal Board of Revenue (23 under process and 31 closed), and inexplicably National Assembly (16 under process and 30 closed); (ii) key reforms remain pending in state-owned entities (SOEs), and as per the report “instead of formulating and implementing a standardized, rule-based framework for SOEs, (it was) was undermined by the creation of a Sovereign Wealth Fund initially granted special rights, though the Government has subsequently indicated its intention to apply the same rules to this entity;” (iii) Special Investment Facilitation Council (SIFC) is, the report notes “vested with substantial authority to facilitate foreign investments,” but “operates with untested transparency and accountability provisions.” The report however estimates foreign direct investment this year at 0.5 percent of Gross Domestic Product (GDP) against 0.6 percent last fiscal year.
The report’s recommendation was for the government to identify foreign investment inflows through the SIFC and the grant/extension of any associated monetary and/or fiscal incentives; and (iii) judicial reforms and though the report pre-dates the twenty seventh constitutional amendment yet some of the recommendations remain pertinent including strengthening integrity and conflict of interest provisions for all judicial personnel, review and increase transparency around payments and grants to judicial personnel, initiating yearly public reporting on the steps taken to strengthen integrity, including statistics on number of complaints received, and the disposition of complaints and other actions and enhancing Judicial Integrity.
The second review report also notes that the continuous SB on avoidance of tax exemptions was missed due to exemptions applied to sugar imports – a benchmark that, so claims the report, has been addressed due to the government pledge to deregulate the sugar sector by end June 2026.
The sugar industry is represented by political giants, a fact that has been cited in several reports (domestic and multilateral), accounting for sustained flawed policy decisions, including allowing sugar exports leading to a domestic shortage and rising prices (by presenting inaccurate data) and, on occasion, agreeing to extend an export subsidy at the taxpayers’ expense on the grounds that domestic prices are higher than the international price.
In July this year Ishaq Dar, the Deputy Prime Minister and Foreign Minister, chaired a steering committee on sugar that approved import of 500,000 tons of sugar, a decision rubber-stamped by the Cabinet, which led to escalating domestic prices.
The Pakistan Sugar Mills Association has supported the policy to deregulate the sugar sector, a policy that has not yet been implemented, though in this case it may lead to strengthening the already powerful sugar mill owners to export the commodity when international prices are higher than domestic prices.
The SB on a plan to phase out special economic zones would need to be shared with federal and provincial cabinet members, who continue to periodically support using these zones to increase the number of manufacturing units to propel growth and employment.
The SB on introduction of excise duty on fertilizer and pesticides was missed but will be implemented as a contingency measure in the event of a revenue shortfall, the report notes, if there is a shortfall by end-December: “the authorities plan to adopt additional measures to safeguard the fiscal targets, including increasing excises on fertilizers and pesticides by 5 percentage points, introducing excises on high-value sugary items, and broadening the sales tax base by moving select items to the standard rate. They are also prepared to reduce or postpone spending in response to lower revenues as a result of the Nati onal Tariff Policy.”
Based on past precedents, one can conclude that disbursements under the public sector development programme would be further curtailed instead of slashing current expenditure.
For the Pakistan Peoples’ Party’s long-term policy thrust towards public private partnership (PPP) the report notes that “we are improving the risk monitoring framework of PPP, including those at the provincial level. We will subject PPP-funded projects to the same rigorous selection criteria applied to projects funded through other sources. The Risk Management Unit (RMU) in the Ministry of Finance, in coordination with other stakeholders, and with support from the ADB, is in the process of establishing a risk monitoring framework for quantifying contingent liabilities related to PPPs and will be publishing estimates by end-December 2025.”
Finally, some projections in the report for the current year appear to be unrealistic: (i) GDP of 3.2 percent in spite of the Fund’s intention to continue to support severely contractionary monetary and fiscal policies; (ii) unemployment of 7.5 percent against 8 percent this year with the two being challenged by independent economists claiming that the Household Survey indicates a staggering 22 percent unemployed with nearly 18 million working age Pakistanis jobless; and (iii) consumer prices are projected to rise to 8.9 percent, 1.9 percent higher than the medium term Monetary Policy Committee’s projection, which would imply the discount rate would not be reduced that, in turn, would significantly raise expenditure on budgeted markup for this year. This perception is strengthened by the report stipulating that the monetary policy needs to remain appropriate tight and data dependent. In addition, it notes a rise in the kifaalat programme from 13,500 to 14,500m rupees per quarter and a rise by at least 200,000 families as an SB, but again this is unlikely to be sufficient given high unemployment and inflation.
To conclude, given the structural benchmarks that have to be met by end December, or within the next month and a half, the third review agreement under the EFF and the second under the RSF are likely to be difficult.
Copyright Business Recorder, 2025
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