By Staff Reporter
KARACHI: An International Monetary Fund review mission kicked off simultaneous talks in Karachi and Islamabad on Thursday, delving into Pakistan’s uneven performance under its bailout program without the standard kickoff meeting with Finance Minister Muhammad Aurangzeb, who’s currently in the US.
The initial session with Aurangzeb, originally penciled in for Sept. 25, has been pushed to Monday due to his absence, according to people familiar with the schedule. Meanwhile, separate IMF teams are engaging the State Bank of Pakistan on monetary policy and federal officials on fiscal issues.
The visit, slated to run about two weeks, will feature forward-looking talks aimed at accelerating progress toward end-December 2025 goals. The talks coincide with fallout from a brutal monsoon that killed more than 1,000 since June 26. Torrential rains and Indian dam releases from late August swamped Punjab, claiming at least 134 lives, displacing over 4.5 million and flooding vast croplands.
The mission landed a day after Prime Minister Shehbaz Sharif met IMF Managing Director Kristalina Georgieva in New York on the UN General Assembly sidelines. Sharif touted program advances but stressed that recent floods’ economic toll “must be factored into the IMF’s review.”
“[The IMF mission will] hold discussions on the second review under the Extended Fund Facility and the first review of the Resilience and Sustainability Facility,” IMF Pakistan representative Mahir Binici said.
Pakistan has already drawn down a third of its Rs390 billion disaster and emergency budget, deploying Rs130 billion to settle arrears to commercial banks for remittance-linked incentives and fees.
Officials now face scrutiny over tapping the emergency pot for these payments while pushing for IMF waivers tied to flood fallout. The current budget lacks any line item for such incentives, despite an estimated Rs100 billion need.
The IMF seeks a clear picture of recent flood damages during the mission, though Islamabad hasn’t finalised assessments. Authorities are banking on relaxed primary surplus and deficit targets to fund relief without fresh taxes or slashing development outlays.
Pakistan fell short on several end-June 2025 markers, including Federal Board of Revenue collections, retail taxes and provincial surpluses, hurdles that could snag negotiations.
A governance and corruption diagnostic remains unpublished despite being in officials’ hands for review, derailing the accompanying action plan. Reforms to state-owned enterprise governance have also stalled, flouting IMF pledges.
While provinces timely legislated agricultural income taxes, rollout and collections from September-October hang in the balance, exacerbated by floods in Punjab and Sindh. This muddies evaluations of aid needs for impacted populations, industries and infrastructure.
Positively, Pakistan largely hit end-June 2025 quantitative criteria, though indicative targets and structural benchmarks lag, gaps that may hamper momentum.
The $7 billion Extended Fund Facility and $1.4 billion Resilience and Sustainability Facility face semiannual scrutiny, necessitating consensus on prior results and upcoming steps.
Success would trigger a roughly $1 billion disbursement (760 million special drawing rights) by end-October.
The IMF board approved the EFF bailout in September 2024. It followed with the RSF approval in May to aid climate resilience against vulnerabilities and disasters. Islamabad has pulled in over $2 billion from the EFF to date, eyeing a third $1 billion slice post-review.
Analysts see room for IMF concessions, tweaking down tax, fiscal and growth forecasts. “We are expecting Pakistan to get a little breather due to the floods,” said economist Sana Tawfik, who expects comfortable target compliance.
Shankar Talreja, research head at Topline Securities Ltd., said the focus remains on reforms with flood-adjusted metrics, including SOE privatization and circular debt resolution. “The concessions are likely in form of some downward revisions in FBR tax revenue, upward revision in fiscal balance over relief spending and there might a downward adjustment in GDP growth target as well,” Talreja said.
JS Global Capital’s Muhammad Waqas Ghani is “cautiously positive” on review completion. “The IMF may still insist on additional reforms or stricter compliance on benchmarks, especially if they perceive backsliding,” Ghani said. “That could raise the political cost or put some stress on already fragile sectors.”
He echoed potential growth downgrades, with floods denting estimates. “IMF will obviously examine how flexible the FY26 budget is to absorb emergency spending without derailing fiscal targets,” Ghani added.
Tawfik suggested the IMF might expand the RSF. “If they (IMF) can increase the amount ($1.4 billion) of the RSF facility, then maybe that will also be considered,” she said, contingent on damage tallies.
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