Pakistan gives IMF key assurances on loan program implementation

The federal government has provided critical assurances to the International Monetary Fund (IMF) to ensure the smooth and full implementation of Pakistan’s ongoing loan program, emphasizing close coordination with provincial governments.

According to the Ministry of Finance, the federal government and all four provinces will work together to ensure complete implementation of all conditions attached to the IMF loan program.

The ministry confirmed that provincial governments will not take any policy action that goes against the IMF program, and the Fund will be taken into confidence on all decisions that may affect it.

Fair burden-sharing, fiscal discipline

The government has assured the IMF that it will further improve the fair distribution of the financial burden between the federation and the provinces.

Under the National Fiscal Package, expenditures are being transferred to provinces, while the National Finance Commission (NFC) framework is being used as an opportunity to strengthen fiscal discipline at both federal and provincial levels.

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The Ministry of Finance stated that all four provinces have committed to fully complying with the terms of the IMF program.

Official documents add that additional steps will be taken, if required, to achieve the program’s fiscal and structural goals.

IMF consultation mandatory

Under the agreed framework, consultation with the IMF will be mandatory before making any changes related to the loan program.

The Finance Ministry will serve as the sole channel of communication between the provinces, federal ministries, and the IMF on program-related matters. 

The government has assured the IMF that the exchange of tax data between the Federal Board of Revenue (FBR) and provincial authorities will be ensured.

The Finance Ministry said the target is to activate a full information exchange system with the provinces by May 2026.

Agricultural income tax reforms

Documents reveal that provinces have prepared comprehensive reform plans for income tax on agricultural income. The ministry said these measures aim to prevent tax evasion and improve the overall agricultural income tax system.

Also Read: Pakistan meets most targets in second review of loan programme: IMF report

According to official documents, general sales tax (GST) will be applicable to all services, except those included in a limited negative list.

GST laws and coding will be harmonized across all provinces, while the National Tax Council will have the authority to decide on any changes to the negative list.

Economic data transparency, monitoring

The Finance Ministry assured the IMF that timely and accurate economic data will be provided to support program monitoring.

The Memorandum of Economic and Financial Policies will serve as the guiding framework for economic decision-making, with the overall economic situation being continuously monitored.

The Finance Ministry said consultations with provincial governments are ongoing regarding the federal government’s right-sizing measures.

These discussions are aimed at aligning administrative reforms with broader fiscal consolidation efforts under the IMF-supported program.

Meanwhile, according to an IMF report on the government’s performance, Pakistan has achieved most targets under the second review of its debt programme. Taxation on agricultural income and budgetary reforms have reportedly been successfully implemented, as per the report. 

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The report said governance and corruption documents were published with delay, while the FBR’s net tax target remained unmet. Out of 13 structural reforms, eight were completed. Taxation on agricultural income and budget reforms were successfully applied. Amendments were made to the law requiring officials to declare assets, and the electricity sector met its payment targets.

The plan to end special economic zones was completed later and amendments to laws of certain state institutions were made belatedly. One condition related to the exemption on sugar imports has not been met. Excise duty targets on fertilisers and pesticides were not achieved, while six other key targets were completed.

A BISP target was missed by a small margin, although greater funds were spent on its core programmes. Targets for State Bank reserves and tax returns were achieved.

Furthermore, Pakistan has assured the IMF that electricity and gas prices will be increased on schedule as part of a broader plan to tackle the country’s fiscal challenges. Officials have outlined measures to boost tax revenue, reform energy sectors, and curb circular debt.

Tax measures to address revenue shortfall

Facing a significant tax revenue gap this fiscal year, the government plans to tighten enforcement of existing tax laws. A roadmap for additional measures will be finalized by the end of this month. Proposals include a 5% increase in federal excise duty (FED) on fertilizers and chemicals, along with new levies on high-end sugary products.

Authorities also aim to intensify monitoring in the cement and sugar sectors, target non-filers and asset holders, and bring 40,000 large retailers under full Point-of-Sale (POS) monitoring within two years. The scope of digital invoicing will expand, and some items may be moved from the 8th GST schedule into the general GST framework.