Fiscal Commitments for Loan Review
Pakistan has formally assured the International Monetary Fund (IMF) it will implement significant fiscal measures, including raising taxes on key agricultural inputs and cutting development spending. These commitments are tied to the successful completion of the second review under a $7 billion loan program, which would unlock a combined $1.2 billion in financing.
Key Tax and Spending Measures
According to an IMF staff report, Pakistani authorities have outlined contingency plans to safeguard fiscal targets. Should revenue fall short by the end of December 2025, the government is prepared to:
- Increase excise duties on fertilizers and pesticides by five percentage points.
- Introduce new excises on high-value sugary products.
- Broaden the sales tax base by moving selected items into the standard 18% GST slab.
- Reduce or postpone development spending, restricting new schemes to just 10% of the Public Sector Development Programme (PSDP) this fiscal year.
Broader Reform Agenda
The assurances extend beyond immediate fiscal adjustments. The government has pledged to fully deregulate the sugar sector, continue power tariff adjustments, and reduce system losses. A nationwide rollout of point-of-sale systems for large retailers is planned over two years, alongside efforts to harmonize sales tax procedures across all provinces.
Economic Context and Projections
The IMF report acknowledges Pakistan’s progress on stabilization, noting a rise in foreign exchange reserves to $14.5 billion and a primary surplus achieved in the last fiscal year. However, it projects a widening balance of payments gap, signaling the potential need for another IMF program in the future. The Fund stresses that sustained reforms in taxation, state-owned enterprises, and energy are critical for long-term growth.
Social Protection and Energy Reforms
Under the social protection pillar, the Benazir Income Support Programme’s (BISP) Kafalat cash transfer will increase to Rs14,500 per quarter starting January 2026, with coverage expanding to 10.2 million families. On energy, the government aims to settle Rs1.2 trillion owed to commercial banks by January 2026 and has a plan to maintain zero net circular debt accumulation through 2031.
Climate Vulnerability and Future Risks
The IMF highlighted Pakistan’s deep climate vulnerability, underscored by the devastating 2022 floods. It urged stronger adaptation measures, improved water management, and disaster preparedness. The report concludes that while the economic recovery remains fragile, it is moving in the right direction, with consistent policy implementation being essential for lowering debt and sustaining growth.
