Pakistan and IMF Agree to Revise Fiscal Targets Amid Economic Adjustments

Islamabad:Pakistan and the International Monetary Fund (IMF) have reached an agreement to revise the macroeconomic and fiscal framework for the current financial year. As part of this adjustment, the Federal Board of Revenue (FBR) has reduced its annual tax collection target from 12.97 trillion rupees to 12.35 trillion rupees.

Despite this downward revision in the tax target, the tax-to-GDP ratio goal remains unchanged at 10.6%. The reduction of 0.62 trillion rupees in the tax collection target comes as FBR is already facing a revenue shortfall of 0.6 trillion rupees for the first eight months of the fiscal year. The remaining four months, from March to June, will require monthly adjustments to meet the revised target.

Additionally, the IMF has mandated that the Ministry of Finance adjust its expenditures to ensure that the target of achieving a primary surplus of 2.4 trillion rupees for the year is still met, based on the revised tax collection target. The Ministry will provide written guarantees that its expenditures will be aligned with the reduced revenue collection goals.

An official stated that there will be no mini-budget, and FBR has been convinced to adjust its target in line with the downward revision of organic growth rates. The size of the economy has been adjusted from 123 trillion rupees to 116.5 trillion rupees, meaning the revised tax-to-GDP ratio will now aim for 12.35 trillion rupees.

High-ranking officials involved in the negotiations disclosed that Pakistan and the IMF are discussing the first review under the 7 billion dollar Extended Fund Facility (EFF), and policy-level talks are expected to conclude by Friday. The official also mentioned that the FBR had conducted a “mock exercise” in preparation for the IMF talks, where internal officials played the role of the IMF review mission and raised potential questions.

The official further revealed that despite the revenue shortfall in the first eight months, the IMF was persuaded not to increase taxes, even though a previously agreed emergency plan that included increasing withholding taxes or federal excise duties was set aside. As a result, both parties have agreed on a broader framework.

Regarding expenditure, the Ministry of Finance has assured that it will be adjusted proportionally, but it has claimed not to cut the development budget. However, the pace of spending under the Public Sector Development Program (PSDP) has been slow, with only 650 to 700 billion rupees being spent out of the revised budget allocation of 1.15 trillion rupees.