Pakistan optimistic about securing next USD 1.1 billion tranche amid IMF mission's assessment
A nine-member delegation from the International Monetary Fund (IMF), led by Nathan Porter, commenced its crucial biannual review of Pakistan's USD 7 billion Extended Fund Facility (EFF) on Monday, March 3, 2025. The mission, scheduled from March 3 to 14, is set to evaluate Pakistan's adherence to quantitative performance criteria, structural benchmarks, and indicative targets established under the 37-month programme signed in September 2024.
According to Dawn News, the successful completion of this review is essential as it will unlock a significant USD 1.1 billion funding tranche, expected to be released over the following three weeks.
Addressing Technical Delays
A senior government official closely involved in the preparation for the IMF review acknowledged technical delays in meeting specific programme deadlines. However, he highlighted that these shortcomings have since been resolved, albeit slightly behind schedule—within weeks or a month.The IMF review primarily assesses Pakistan’s economic performance during the first half of the fiscal year (July 1 - December 31, 2024). While certain performance targets initially faced shortfalls, officials remain confident that these issues have now been rectified.
Revenue Shortfall and Fiscal Adjustments
The primary challenge identified was a significant revenue shortfall against programme targets. However, the government has managed to compensate for this shortfall through a higher-than-targeted primary budget surplus and an increased revenue-to-GDP ratio. This improvement came primarily from higher non-tax revenues, including profits from the central bank, petroleum levy collections, and earnings from the telecom sector.The official explained that changing macroeconomic conditions both domestically and internationally were significant factors contributing to revenue shortfalls. The IMF, reflecting these realities, recently revised Pakistan’s growth forecast downward to 3% for the current fiscal year from an earlier estimate of 3.2%, attributing this revision to lower-than-expected cotton and wheat production as well as lagging industrial output.
Improved Debt Management and Structural Benchmarks
In a positive development, Pakistan successfully extended its debt maturity profile, easing repayment concerns. By shifting debt from short-term instruments to longer-term obligations, the government has extended the end-December average debt maturity from the initial target of 32 months to over 39 months.The official emphasized that several programme targets due at the end of February had already been met, suggesting potential over-performance in some areas to offset previous shortcomings during discussions with IMF representatives.
Structural Reforms and PSDP Improvements
Notably, the majority of the 17 structural benchmarks agreed with the IMF—many of which had continuous implementation deadlines extending to February—have been successfully met, though some experienced delays. A notable pending benchmark includes amendments to the Sovereign Wealth Fund (SWF) law, initially due by December.Meanwhile, the Ministry of Planning has recently clarified the criteria and methodology for future Public Sector Development Programme (PSDP) project selections, emphasizing strategic infrastructure, foreign-funded initiatives, and climate-resilient projects, especially targeting development in the 20 least-developed districts.
Additionally, an important structural benchmark requires amendments to the Civil Servants Act, 1973, by February 2025. These changes will enforce digital asset declarations by high-ranking public officials (BPS 17-22), making their assets—including foreign holdings—publicly accessible while ensuring data protection.
IMF Priorities and Tax Reforms
Ahead of the review, the IMF reiterated its objective to significantly enhance Pakistan's tax-to-GDP ratio by around 3%. This will be achieved by broadening the tax base, improving compliance, and ensuring fairness in the tax system. Key reforms include:- Expanding direct taxation to include retailers, property owners, and agricultural income.
- Rationalizing personal and corporate income taxes by reducing exemptions.
- Streamlining general sales tax rates.
- Increasing Federal Excise Duty coverage.
- Eliminating tariff exemptions to boost customs revenue.
The Pakistani government remains confident that this IMF review will conclude successfully, paving the way for continued economic stabilization and growth.