Pakistan is expected to secure over $1 billion as the third tranche of the IMF’s Enhanced Fund Facility (EFF), despite policy slippages, as talks between authorities and the visiting review mission move into the policy stage.
Technical-level discussions have already concluded, with both sides likely to agree on a few waivers before finalizing the review in meetings with Finance Minister Muhammad Aurangzeb next week. The disbursement, subject to IMF board approval, could materialize by early next month, bolstered by the favorable global political environment.
The power sector has shown improvement through better recovery and reduced circular debt, but weaknesses remain in federal revenues, provincial budget surpluses, and agricultural tax collection.
The FBR fell short of revenue targets by nearly Rs200bn in the first quarter of FY26, while Punjab and Sindh failed to meet their surplus commitments, further strained by flood-related spending demands.
The IMF has pressed provincial governments to adhere to fiscal discipline, with Punjab facing the largest surplus target of Rs740bn. However, given the floods, provinces appear inclined toward seeking waivers rather than enforcing agricultural income tax laws, which remain largely unimplemented.
The review also discussed circular debt in the gas sector, benchmarking for future monitoring, and compliance with state-owned enterprise reforms, where challenges persist.
Disagreements continue over refinery tax incentives, with the IMF opposing relaxations that could undermine the $1.4bn Resilience and Sustainability Facility (RSF). While the government argues that outdated refining technology exacerbates environmental and health issues, the IMF has rejected calls for exemptions.
Although Pakistan has largely met quantitative performance criteria, it lags on indicative targets and structural benchmarks, requiring stronger efforts to maintain momentum.
The successful conclusion of the review is critical not only for securing immediate funds but also for sustaining future disbursements under the EFF and RSF programmes.
