By Staff Reporter
ISLAMABAD: Pakistan is on track to secure more than $1 billion as the third tranche of its International Monetary Fund bailout, even with some fiscal shortfalls, as officials kick off policy-level talks with a visiting IMF review mission, Dawn newspaper reported on Saturday.
The technical discussions have wrapped up, setting the stage for the two sides to hash out a couple of waivers during policy engagements before concluding the review with Finance Minister Muhammad Aurangzeb by the weekend of Oct. 9-10. The power sector has delivered standout results, with better recovery rates and a slowdown in circular debt buildup, achieved by redirecting subsidy allocations and securing new replacement loans.
But federal revenues and provincial fiscal performance — especially on pledged budget surpluses and agricultural tax collections — have lagged, emerging as key pain points. A mix of additional measures to be negotiated over the next four days, combined with allowances for flood-related disruptions, is expected to clear the path for wrapping up the second review. That would trigger the release of the next tranche exceeding $1 billion by early next month, pending IMF board approval. The broader geopolitical backdrop remains supportive for Pakistan, with major voting members on the fund’s board in its corner.
The Federal Board of Revenue and the provincial governments of Punjab and Sindh are under the microscope, according to Dawn. The FBR not only fell well short of its end-June 2025 revenue goal but also posted a similar deficit in the first quarter of the current fiscal year — around Rs 200 billion, averaging more than Rs 65 billion monthly — despite a sweeping overhaul that included deploying a large fleet of vehicles. The pivotal issue now is whether expected recoveries from ongoing court cases can close the gap, or if further steps will be needed come November.
On the provincial front, despite sharing power in the federal coalition, Sindh and Punjab missed their cash surplus targets at the end of the last fiscal year, with Sindh even tabling a deficit budget to start FY26. The IMF has leveraged the review to demand fixes, as these lapses have also encouraged the opposition-controlled Khyber Pakhtunkhwa government to ramp up spending for political gains, even though it has held the line on fiscal discipline so far.
With flood pressures mounting, the provinces are unlikely to improve this year, though the IMF is urging them to get back on track. This pushback was evident in the Punjab chief minister’s public outburst on Thursday about being grilled by the IMF on all financial issues. Punjab faces the steepest surplus obligation to the center at Rs740 billion, followed by Sindh at Rs370 billion, KP at Rs220 billion, and Balochistan at Rs155 billion.
Compounding matters, both federal and provincial authorities have faltered in rolling out a robust system for agricultural tax collection. Amid the recent floods, they seem more focused on pushing for exemptions and waivers than enforcing the laws enacted last year to satisfy IMF requirements. Provinces have tried tying their surplus pledges to the federal government’s revenue haul. Both KP and Punjab have reportedly told the IMF mission they’ll cover flood-related costs from their own pockets.
While all provinces passed agricultural income tax legislation on schedule, actual enforcement and collections — slated to kick off in September-October this year — are up in the air, especially with floods hitting Punjab and Sindh hard. As a result, officials are still gauging the full scope of aid needed for flood victims, industries, and infrastructure.
Talks have also delved into the escalating circular debt in the gas sector, fueled in part by offloading liabilities from the power side. The parties are debating future benchmarking for the gas industry, with emphasis on definitions and reporting protocols. To date, the two sides haven’t bridged gaps on adhering to state-owned enterprise laws, including issues with blue-chip firms under the Pakistan Wealth Fund and governance hurdles like public disclosure of assets and returns for officials across government levels and branches.
All told, Pakistan’s program performance through end-June 2025 has been uneven, demanding stepped-up efforts ahead. The IMF has reportedly rejected pleas for tax breaks to spur upgrades at aging refineries — jeopardising about $6 billion in potential new investments — arguing they’d undermine the $1.4 billion Resilience and Sustainability Facility aimed at climate resilience. The refinery incentive policy was rolled out two years ago after industry consultations, with companies nearing binding deals when the government, as part of the IMF program, vowed against any tax exemptions.
The Petroleum Division has contended that current refineries generate major environmental risks in processing and end-use, posing health threats and worsening climate impacts. As the government chases RSF funding for various initiatives, it’s facing domestic blowback from sticking with obsolete refining tech — a predicament it attributes to what it calls technical missteps by IMF negotiators, alongside positions from the finance ministry and FBR.
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