ISLAMABAD (PEN) : Pakistan’s recent round of economic talks with the International Monetary Fund (IMF) concluded without securing a staff-level agreement, despite some signs of progress. The IMF has outlined further reforms that Pakistan must implement before receiving the next tranche of the $7 billion loan program.
Ongoing Negotiations and Pending Issues
While Pakistan showed improved economic performance, critical issues remain unresolved. Sources familiar with the discussions noted that these matters could be addressed in virtual meetings over the coming weeks. Pakistan is expected to fulfill several conditions outlined in the Memorandum of Economic and Financial Policies (MEFP) in order to unlock the next disbursement.
One of the key demands from the IMF is an increase in the petroleum levy by Rs 10 per liter, raising the levy from Rs 60 to Rs 70. The Pakistani government has indicated that it is prepared to impose a carbon levy if required.
Tax and Energy Sector Reforms
The IMF has also called for continued reforms in Pakistan’s tax and energy sectors. There is a particular emphasis on expanding the tax base, including bringing the retail, real estate, and wholesale sectors into the formal tax net. The IMF has long pressed for these sectors to contribute more to the country’s revenue generation.
Additionally, the IMF has insisted on further progress in privatizing state-owned enterprises (SOEs), particularly in the energy sector with entities like electricity distribution companies (DISCOs) and Pakistan International Airlines (PIA). These reforms are considered essential for Pakistan’s fiscal consolidation and broader economic stability.
IMF’s Satisfaction with Economic Progress
Despite the lack of a formal agreement, Pakistan’s efforts to meet the IMF’s fiscal consolidation targets have been recognized. On March 14, the government successfully assured the IMF that no mini-budget would be introduced before June, easing some of the lender’s concerns.
The IMF reportedly expressed satisfaction with Pakistan’s overall economic performance, which could help pave the way for the release of the next $1 billion tranche under the $7 billion loan program. The discussions included detailed reviews of the country’s performance during the first half of the fiscal year, as well as the formulation of future policy objectives.
Fiscal and Tax Reforms Ahead
Tax reforms remain a central focus of the IMF’s demands. The Federal Board of Revenue (FBR) has committed to increasing the tax-to-GDP ratio and reducing revenue shortfalls, with a target of Rs 15,000 billion in tax revenue for the upcoming fiscal year. The government has also set a goal to generate Rs 2,745 billion from non-tax sources.
The IMF has urged the Pakistani government to take stronger action on tax exemptions for the wealthy, enforce a super tax on large industrialists, and implement direct taxation on agricultural income from large landowners. These measures are designed to ensure more equitable revenue generation and to decrease reliance on external loans.
Economic Outlook and Future Goals
Pakistan’s economic outlook remains cautiously optimistic. The country’s GDP growth is expected to exceed 4% next fiscal year, compared to 3.5% this year. Inflation is projected to stay within single digits, and the government anticipates external financing needs to surpass $20 billion. To address this, Pakistan plans to roll over deposits from friendly countries as part of its strategy for managing external debt.
While the talks with the IMF have yet to yield a final agreement, the country’s economic reforms continue to move forward, with both sides hopeful that the next steps will lead to the release of the essential loan tranche.
