On April 29, 2024, Pakistan successfully concluded a nine-month Stand-By Arrangement with the International Monetary Fund (IMF). Building on this milestone, the nation transitioned into a 37-month Extended Fund Facility (EFF), amounting to 261.9% of Pakistan’s IMF quota — approximately $7 billion. This programme aims to consolidate macroeconomic stability and safeguard the sustainability of the external sector.
Following the approval of the FY25 budget, Pakistan undertook several critical prior actions mandated by the IMF agreement. These included targeting a primary budget surplus of 1.0% for FY25, notifying annual electricity tariff rebasing, and instituting semiannual gas tariff adjustments. The implementation of these measures paved the way for the IMF Board’s approval in September 2025, releasing the first tranche of $1 billion under the arrangement.
The programme’s progress is meticulously tracked through Quantitative Performance Criteria (QPCs), Indicative Targets (ITs), and Structural Benchmarks (SBs), as detailed in the Memorandum of Economic and Financial Policies (MEFP). Semiannual reviews, supported by ongoing assessments of financing commitments, ensure that the program remains adequately funded and on track.
A distinctive element of this agreement is the inclusion of provincial commitments. Provinces are required to consult with the IMF, through the Federal Ministry of Finance, before adopting any measures that may affect the program objectives.
Pakistan’s first formal review is scheduled for February 2025, with the IMF having already conducted a stock-taking mission in October 2024 — just a month after the board approval. This review will evaluate performance against targets set in the MEFP through December 2024 and chart a way forward.
The programme identifies seven QPCs to be met by December 2024. The first QPC sets a floor on the net international reserves of the SBP, at $12,150 billion. The SBP reported reserves of $11.71 billion as of December 27, 2024, reflecting a marginal shortfall. The second QPC sets a ceiling on the net domestic assets of the SBP of Rs15,211 billion and the third on the SBP’s stock of net foreign currency swaps/forward position of -3,250 million. Public data on these two QPCs is insufficient for evaluation.
The fourth QPC of the ceiling on the general government’s primary budget deficit — targeted at a surplus of Rs2,877 billion — is likely to have been met, aided by the SBP’s robust transfer of Rs2,500 billion in the first quarter of FY25. The fifth QPC sets a ceiling on the amount of government guarantees at Rs5,200 billion. It is hoped that the authorities have maintained fiscal discipline and met the target.
The sixth QPC relates to a cumulative floor on targeted cash transfer spending through the Benazir Income Support Program of Rs235 billion by the end of December 2024is likely to have been met, reflecting expanded household coverage and increased disbursements. The last QPC puts a cumulative floor of 225,000 new tax returns from first-time filers by December 2024. Preliminary reports suggest this target has been achieved.
The two Continuous Performance Criteria — prohibiting new SBP credit flows to the government and ensuring zero external public payment arrears by the general government — also appear to have been met, though the latter warrants scrutiny. On the first authorities have reported debt retirement.
The programme also sets eight ITs for December 2024, with available data allowing a review of certain key ones. Among these, the Federal Board of Revenue’s (FBR) net tax revenue floor of Rs6,009 billion for 1HFY25 fell short by Rs386 billion, despite a 26.5% growth in revenues. This shortfall raises concerns of a potential annual deficit nearing Rs1,000 billion. MEFP stipulates additional tax measures if deviations exceed 1.0% of the target. 1HFY25 deviation stands at 6.4%.
The country has long struggled to integrate the wholesale and retail sectors accounting for 55% of GDP into the formal tax net. Consequently, the IT of a floor on net tax revenues collected by the FBR from retailers under the Tajir Dost scheme — set at Rs23.4 billion by December 2024 — remains significantly unmet. However, the adherence to the target of net accumulation of tax refund arrears, capped at Rs43 billion, provides some reassurance.
Provincial performance plays a crucial role in meeting program targets. One of the ITs requires the provincial revenue authorities to achieve a consolidated floor of Rs376 billion in net tax revenues by December 2024. The IT appears attainable, as it is relatively modest compared to the provinces’ overall revenue potential.
Another IT seeks to cap power sector payment arrears, commonly referred to as circular debt, with an accumulation limit of Rs461 billion. While declining electricity consumption across Pakistan poses a significant challenge to achieving this objective, authorities have underscored data through November, which reflects promising progress toward meeting this target.
Structural reforms are vital to the programme’s success. Pakistan authorities have committed to implementing 22 SBs across fiscal, governance, social, monetary, and financial sectors. Three of these are continuous commitments: abstaining from granting amnesties or tax preferential treatments, securing ex-ante parliamentary approval for any non-budgeted expenditures, and maintaining a narrow premium between interbank and open market exchange rates within 1.25%. Encouragingly, the country appears to have adhered to these commitments.
The remaining SBs with deadlines by December 2024 merit close attention. Among these is the approval of a National Fiscal Pact aimed at devoting certain spending responsibilities to the provinces. The IMF will evaluate whether the proposed reform has been effectively undertaken.
Another key SB required the submission of a comprehensive report to the IMF by September 2024, detailing strategies to reduce the federal government’s footprint. Compliance with this benchmark hinges on the report’s quality; however, as its contents remain undisclosed, the IMF’s assessment is expected to be highlighted in the next MEFP.
Provinces were also tasked with amending Agriculture Income Tax legislation to align with the federal personal income tax framework for small farmers and the corporate income tax framework for commercial agriculture. With taxation set to commence on January 1, 2025, the amendment deadline was October 2024. Regrettably, only one province met this deadline, resulting in a missed SB.
Additional SBs for completion by December 2024 include instituting compliance risk management measures in large taxpayer units, amending the Sovereign Wealth Fund Act, and enacting legislative reforms to improve state-owned enterprise governance. The amendment to the Sovereign Wealth Fund Act remains outstanding.
Pakistan’s journey under the EFF programme reflects a mix of achievements and setbacks. As the February 2025 IMF review approaches, authorities must bridge the gaps, present a compelling rationale for unmet targets, and propose credible corrective actions. A successful review is critical to securing continued external disbursements bolstering investor confidence and steering the nation toward sustainable economic stability.
The writer was part of the team that negotiated the IMF programme successfully implemented in 2013-2016. (Ex-adviser MoF)
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News