Pakistan's $7-bn IMF bailout deal hits a rough patch. Here's what we know

IMF reportedly mulling stricter review of Pakistan bailout package after noticing early slippages

The International Monetary Fund (IMF) is considering reverting to a three-month review schedule of the $7 billion bailout package for Pakistan after seeing early slippages, but Pakistani authorities insist that no final decision has so far been taken, Pakistani publication, The Express Tribune, reported on Wednesday.

 

The matter of reverting to quarterly reviews reportedly surfaced during an unscheduled IMF mission visit. The mission had to rush to Islamabad to keep the programme on track, added the report. The Pakistani finance ministry has also been unable to keep the country's provinces on the right track, sources told the publication.

 

Citing sources, the report said that a quarterly review would ensure the constant monitoring of the about 40 conditions Pakistan has agreed to under the $7 billion deal. However, Pakistani negotiators also told The Express Tribune that no final decision has been taken on the issue of biannual and quarterly reviews. 

 

 

The IMF board approved the $7 billion deal about six weeks ago and released $1.1 billion upfront. Subject to the successful completion of half-yearly reviews, the remaining amount of around $6 billion will be distributed in six equal tranches.

 

The completion and approval of the first review was scheduled for March 2025. However, due to multiple challenges on the fiscal, taxation and external financing fronts, the IMF mission arrived before time. The last Extended Fund Facility under the 2019-22 IMF deal for Pakistan was also based on quarterly reviews.

 

In case of the quarterly reviews, the IMF can ensure strong implementation by keeping a close check on the Pakistani government, the sources reportedly said. The quarterly reviews would also strengthen the hands of the Ministry of Finance to ensure monitoring of the 40 conditions, they added. 

 

What did the IMF find in Pakistan?

 

The IMF mission reportedly took the first round of briefings from various Pakistani ministries on Monday, while Mission Chief Nathan Porter held opening talks with Pakistani Finance Minister Muhammad Aurangzeb and State Bank of Pakistan (SBP) Governor Jameel Ahmad on Tuesday.

 

According to the report, the IMF held different rounds of discussions on the issues of the Federal Board of Revenue's (FBR's) performance, reliability of the power sector statistics and performance of the macroeconomic targets. An important round was also held on the status of the implementation of the National Fiscal Pact.

 

The FBR gave an overview of its performance during the first quarter. The IMF was reportedly told that the three-month shortfall of 90 billion Pakistani rupees (PKR) was because the macroeconomic assumptions went off the mark. 

 

The FBR briefed the IMF that the reasons for missing the monthly targets were related to slow growth in imports, slowing down of inflation rate, while some of the policy measures also did not respond as expected.

 

The FBR reportedly tried to convince the IMF that it had met the PKR 10 billion tax collection target for the traders because of higher collection from the non-filer retailers, who pay a withholding tax but stay out of the tax net. However, the report explained that the IMF's PKR 10 billion target was set against the Tajir Dost scheme, the target of which was missed by a whopping 99.99 per cent.

 

The Tajir Dost Scheme is a voluntary tax compliance initiative launched by the Pakistan government in March 2024. It is aimed at integrating unregistered businesses into the country's formal tax system.

 

The FBR also reportedly tried to convince the IMF that despite revenue shortfalls, it would still be in a position to achieve the 11.5 per cent tax-to-GDP goal. But, the report explained that the FBR said that this was due to the shrinking size of Pakistan's overall economy. The report added that the absolute collection figure would still be far less than PKR 12.97 trillion without a mini-Budget.

 

The report explained that the FBR's tax target of PKR 12.97 trillion had been set on the basis of 15 per cent nominal GDP growth -- 3 per cent GDP and 12 per cent inflation. The nominal size is now expected to shrink to less than 12 per cent, which would reduce the overall size of the economy against the projections, it added.

 

Citing sources, the report said that the IMF did not share its mind on whether it had accepted the FBR's logic or would still press for bringing the mini-Budget as promised by the government of Pakistani Prime Minister Shehbaz Sharif in September.