ISLAMABAD: The Pakistani government is displaying optimism as a team from the International Monetary Fund (IMF) commences its first biannual evaluation of the $7 billion Extended Fund Facility (EFF) agreed upon in September last year. Expectations are high for the successful completion of discussions, anticipated to unlock a tranche of $1.1 billion over the next three weeks.
The nine-member IMF delegation, led by Nathan Porter, will engage in a 10-day dialogue with Pakistani officials from March 3 to 14. The discussions will focus on the country’s adherence to quantitative performance criteria, structural benchmarks, and indicative targets established under the 37-month financial program.
A senior government official, involved in the review’s preparations, acknowledged technical delays in meeting specific deadlines but assured that these have been resolved within acceptable timeframes. “The performance review focuses on the first half of the current fiscal year—from July 1 to December 31, 2024,” the official noted, adding that initial shortcomings have now been addressed.
The primary concern highlighted so far has been a revenue shortfall compared to program targets. However, the official was quick to point out that this shortfall has been offset by a higher-than-expected primary budget surplus and improved non-tax revenue receipts, driven by central bank profits, petroleum levies, and telecom profits.
The revenue gaps were attributed to shifting domestic and international macroeconomic conditions. Last month, the IMF revised Pakistan’s growth estimate downward to 3% for the current fiscal year, a slight decrease from the 3.2% projected at the program’s inception. Lower-than-expected yields in cotton and wheat production, as well as challenges in industrial output, have been significant contributors to the revenue shortfall.
In recent months, the government has successfully extended the debt maturity period, alleviating concerns that had persisted until October last year. The average debt maturity period target has been extended from 32 months to over 39 months, reducing immediate debt repayment pressures. This was achieved by utilizing surplus cash within the system and transitioning debt from short-term to longer-term instruments.
Further, the government has already met several targets set for the end of February, with expectations that any overperformance in certain areas will compensate for underperformance elsewhere during discussions with IMF staff. Nonetheless, authorities acknowledge the need for improvements in expanding the tax net within the retail sector and amending the Sovereign Wealth Fund law by the end of December. Of the 17 structural benchmarks, nearly all have been met, some with minor delays.
In preparation for future planning, the Ministry of Planning has outlined criteria for selecting Public Sector Development Programme (PSDP) projects, emphasizing strategic projects with realistic completion estimates, exceptional infrastructure projects, and climate-resilient initiatives.
A critical upcoming structural benchmark in the IMF program requires amending the Civil Servants Act by February 2025. This amendment will make it mandatory for high-ranking officials to file digital asset declarations, ensuring transparency and data protection.
The IMF has emphasized the need for Pakistan to improve its low tax-to-GDP ratio by 3%, focusing on expanding direct taxes, rationalizing income taxes, and enhancing Federal Excise Duty coverage. These measures aim to broaden the tax base and improve compliance, ultimately improving the fairness and efficiency of the tax system.
