Pakistan authorities talk with the IMF on their review under the Extended Finance Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF) have remained inclusive and the review which was supposed to be completed on 15th March is getting delayed.
Does it sound a worry for Pakistan? Not really, asall the binary (quantitative) targets for End December 2025 are being met. There are issues in the indicative targets – such as FBR revenues and other structural benchmarks, where the government is likely to get waivers.
The delay is mainly based on next year’s budget framework and its viability. The other issue could be about external account risks developing in the backdrop of theWar in the Middle East which are making oil and other commodity prices volatile and may create issues in rollovers which could result in not meeting gross financing requirement and reaching the target of SBP forex reserves of $17.8 billion by June 26.
As of now, based on past performance, the Fund team is not at all content with the FBR performance. As the tax authority has not only missed the indicative target of tax collection for December 2025 and is likely to miss the revised down target of Rs13.5 trillion (FBR tax revenue) from Rs14.13 trillion for the full year.
Although, government met primary surplus target for December and may get the number by June 2026 by slashing development spending, the perturbing factor is that the tax authority is failing to broaden the tax net. The Fund is not at all happy with the revenue progress. The government has been trying to dodge the IMF for the past one year and it appears Fund patience is weaning off.
There is no progress on the taxation collection from the retail. Earlier schemes including Tajir Dost Scheme and retail sector-based tax collection have failed so far, and now discussions are on another asset-based scheme taking place. Nothing will work until the government has a resolve to do so which is missing so far.
The gist about taxing agriculture income is similar where the implementation by the provinces is extremely poor. Hence the axe falls on the formal corporate and salaried taxes. The formal businesses have registered their protest in IMF’s team meeting with them in Karachi. And government wants to reduce super taxes and all, but how can this happen without broadening efforts?
Apart from taxation, the IMF is not happy with ending cross subsidy which used to be offered to domestic consumers and charged from others including industrial consumers. The government has ended this for industrial consumers. The IMF has reluctantly accepted it.
The issue that may arise in the coming months is of the growing external account risks in the backdrop of rising energy prices. The government may reduce PL and high oil prices may put pressure on the current account, and absence of replacing maturing Euro Bond and UAE deposits, can bring the question about gross financing requirements.
Times are tough and situation is fluid. This review may pass, but there might be issue by the next.
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