Staff-Level Agreement
Despite Pakistan’s improved economic performance, the latest round of talks with the International Monetary Fund (IMF) concluded without a staff-level agreement. However, insiders suggest that the pending issues could be resolved through virtual discussions in the coming weeks.
Officials familiar with the negotiations revealed that Pakistan must implement several measures under the Memorandum of Economic and Financial Policies (MEFP) to secure the next tranche of the IMF loan. One of the key conditions is an increase in the petroleum levy by Rs 10 per litre, raising it from Rs 60 to Rs 70 per litre.
The government has also shown readiness to impose a carbon levy if the IMF demands it. Moreover, the IMF has insisted on further reforms in the tax and energy sectors, emphasizing the need to broaden the tax base and eliminate market-distorting subsidies. The Fund has reiterated its demand to bring the retail, real estate, and wholesale sectors into the formal tax net to enhance revenue collection.
Sources within the Ministry of Finance indicate that while an immediate agreement was not reached, the IMF Executive Board is expected to review Pakistan’s progress in May. If the agreed-upon conditions are met, the Board will approve the disbursement of $1 billion under the $7 billion loan programme.
Despite Pakistan’s efforts to achieve fiscal consolidation targets, concerns persist over the slow pace of privatization of state-owned enterprises (SOEs), particularly the electricity distribution companies (DISCOs) and Pakistan International Airlines (PIA). The IMF has repeatedly pressed Pakistan to accelerate these reforms as part of broader economic stabilization measures.
On March 14, the government successfully convinced the IMF that no mini-budget would be introduced before the end of June. Officials claim that the IMF has expressed satisfaction with Pakistan’s economic performance, paving the way for the release of the next tranche.
IMF officials, led by Nathan Porter, held extensive meetings with Federal Finance Minister Muhammad Aurangzeb, where they reviewed Pakistan’s economic progress during the first half of the fiscal year and discussed future policy goals.
The IMF has emphasized the need for tax reforms and urged the government to expand the tax base, particularly targeting the retail, wholesale, real estate, and dealership sectors.
The Federal Board of Revenue (FBR) assured the IMF of improvements in tax collection, including steps to increase the tax-to-GDP ratio and reduce revenue shortfalls. The government has set an ambitious target of Rs 15,000 billion in tax revenue for the next fiscal year and aims to collect Rs 2,745 billion from non-tax sources.
The IMF has also pushed Pakistan to eliminate tax exemptions for the wealthy elite, enforce super tax on large industrialists, and implement direct taxation on agricultural income from large landowners.
According to official estimates, Pakistan’s GDP growth is expected to surpass 4% in the next fiscal year, compared to 3.5% this year. Inflation is projected to remain in single digits, while the country’s external financing needs are estimated at over $20 billion. The government is also relying on rolling over deposits from friendly countries as part of its external debt management strategy.
