Finance Minister Muhammad Aurangzeb announced on Tuesday the beginning of discussions between Pakistan and the International Monetary Fund (IMF) for the first biannual review of the $7 billion Extended Fund Facility (EFF). Aurangzeb expressed optimism about Pakistan’s position as the review process unfolds.
The three-year, $7 billion aid package was agreed upon in July, with the aim of solidifying Pakistan’s macroeconomic stability while fostering conditions for stronger and more inclusive growth. A nine-member IMF mission, led by Nathan Porter, has arrived in Pakistan to conduct the review, which will extend over ten days from March 3 to 14.
The review process involves assessing Pakistan’s adherence to the programme’s quantitative performance criteria, structural benchmarks, and indicative targets. Aurangzeb confirmed that the discussions would be divided into two phases: technical talks followed by policy-level negotiations. He assured that Pakistan is “well-positioned” for this review despite some initial technical delays, which the government claims have been resolved.
A senior government official highlighted that while there were technical slippages concerning deadlines, these were addressed with minimal delay. The official pointed out that although there was a revenue shortfall against programme targets, this was offset by a larger-than-anticipated primary budget surplus and a better-than-expected revenue-to-GDP ratio, driven by increased non-tax revenues.
The success of this review is crucial for the release of the next tranche of approximately $1 billion. The IMF has reiterated the programme’s goal of enhancing Pakistan’s tax system by increasing the tax-to-GDP ratio by 3 percent, broadening the tax base, and improving compliance. Key focus areas include incorporating retailers, property owners, and agricultural income into the tax net, rationalising personal and corporate income taxes, and enhancing customs revenue through the elimination of tariff exemptions.
The IMF’s emphasis on these reforms comes as Pakistan’s salaried class has become the third-largest contributor to income tax, following banks and the petroleum sector, surpassing textile exporters.
In addition to the EFF review, a separate IMF technical mission recently visited Pakistan to discuss an additional $1 billion in climate financing. This financial assistance is seen as vital for addressing climate-related challenges facing the country.
The outcome of these discussions will be pivotal in shaping Pakistan’s economic trajectory and ensuring the continued support from international financial institutions.
