Pakistan-IMF talks end without staff-level deal as differences emerge over budget targets: report

The third review of Pakistan’s Extended Fund Facility under the International Monetary Fund (IMF) is expected to take longer after discussions failed to conclude within the scheduled timeline on Wednesday, with no staff-level agreement reached for the release of a $1 billion tranche as differences emerged over fiscal projections and tax collection targets, The Express Tribune reported. 

The IMF team returned to Washington without finalising the staff-level agreement, though government officials said they expected negotiations to continue and hoped the delay would not extend until the next IMF visit scheduled around May for discussions on the upcoming federal budget.

Although Pakistan met the quantitative performance criteria for the July–December 2025 period, the IMF expressed concerns that the government may fail to achieve the primary budget surplus target by the end of the fiscal year.

Pakistan had committed to generating a primary surplus of Rs3.15 trillion during the current fiscal year, which officials now expect could be missed by a wide margin.

Talks between the two sides began on February 26. The IMF mission, led by Iva Petrova, initially arrived in Karachi but left on March 2 due to security concerns following the escalation of conflict in the region. The remaining discussions were conducted virtually from Türkiye.

Officials said the main issue during the talks was the performance of the Federal Board of Revenue (FBR). The IMF questioned whether the tax authority could collect even Rs13.5 trillion during the current fiscal year.

The government had originally set the tax collection target at Rs14.13 trillion. During the second programme review, the IMF revised the target downward to Rs13.98 trillion, but the FBR has now requested a further reduction to slightly below Rs13.5 trillion.

Pakistan also missed two indicative targets during the July–December period, including a total tax collection target of Rs6.5 trillion and Rs366 billion expected from the retail sector.

The IMF also raised questions about several fiscal assumptions, including projected revenues from dividends of state-owned enterprises and petroleum levy collections.

Officials said the IMF sought greater clarity on the budget framework for the next fiscal year and is expected to send another mission to Pakistan for further discussions.

Discussions also covered governance reforms. The IMF objected to recent amendments to the Election Commission of Pakistan Act that exempt parliamentarians from asset disclosure requirements and asked the government to reverse the changes.

The fund also raised concerns about the implementation of reforms in state-owned enterprises, particularly the appointment of government officials on boards as private members.

According to officials, the IMF noted that progress on the broader reform agenda had been slower than expected, including delays in the privatisation programme. The government informed the fund that the planned privatisation of three power distribution companies is unlikely to take place before the fall of this year.

Pakistan met most structural benchmarks but did not complete the required amendment to the Sovereign Wealth Fund Act in line with IMF expectations.

The IMF also rejected Pakistan’s request to abolish the carbon levy on furnace oil and declined a proposal to allow zero sales tax on oil refineries, advising the government to incorporate the tax in fuel prices.

Officials said discussions also covered energy sector issues, including levies on captive power plants and electricity subsidies.

The IMF did not accept the government’s proposal to allocate Rs990 billion in power subsidies for the next fiscal year and asked that the amount be kept below Rs800 billion.

Similarly, the fund rejected a request to allow Rs500 billion in circular debt additions next year and instead asked the government to limit the increase to around Rs300 billion.