IMF to review governance reforms, fiscal pact as Pakistan seeks $1.2 billion loan tranche

The International Monetary Fund (IMF) will prioritize the implementation of the Governance and Corruption Diagnostic report and the National Fiscal Pact during upcoming review talks, set to begin on February 26, according to a report. 

On February 25, the IMF mission will first visit Karachi for meetings with the State Bank of Pakistan, before traveling to Islamabad. Key discussions with federal and provincial governments are scheduled to start on March 2, concluding on March 11.

Led by IMF mission chief Iva Petrova, the IMF team will review Pakistan's progress on governance and anti-corruption measures, areas that have historically been managed by non-financial institutions but are now seen as central to addressing systemic issues like tax evasion and corruption. The outcome of the talks will determine whether the IMF sends a technical assistance mission to assist in further reforms.

These discussions are critical for the release of the next $1.2 billion loan tranche under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF), totaling $7 billion and $1.1 billion, respectively.

According to a report by The Express Tribune, among the critical issues on the agenda are the government’s progress in implementing the Economic Governance Reform plan, which follows recommendations from the Governance and Corruption Diagnostic report. The federal government has already released a three-year implementation plan, and committees headed by federal ministers have been formed to oversee the reforms. 

However, the National Fiscal Pact, which includes fiscal decentralisation and expansion of the tax base, has yet to be fully implemented.

Provincial governments have also delayed introducing a new agriculture income tax regime, and the federal government has initiated health and education projects within provincial domains, creating friction in implementation. The IMF will also monitor the empowerment of provincial anti-corruption agencies and progress on anti-money laundering efforts.

The IMF is seeking updates on the disclosure of wealth statements and income tax returns filed by provincial government employees, despite concerns from the bureaucracy regarding privacy. 

Additionally, progress on a centralised corruption risk assessment framework is expected, with the National Accountability Bureau (NAB) tasked with drafting the national corruption risk assessment.

Pakistan is also committed to finalizing the Public Procurement Rules 2025 by June this year, aimed at ending the special status of state-owned enterprises in securing government contracts without proper bidding. Other key reforms include addressing the backlog of economic dispute cases, improving tax policy, and simplifying the tax regime.

The IMF's review will also assess the government's capacity to manage and execute these reforms, with Pakistan having enlisted support from the UK’s Foreign, Commonwealth and Development Office to oversee the process, following resistance to the IMF’s proposed technical assistance mission.