By Naeem Khan
ISLAMABAD – The International Monetary Fund (IMF) has raised serious concerns over Pakistan’s tax shortfall and delays in securing foreign loans, amid a review of the country’s economic performance under its $7 billion support package. Following a five-day visit to Islamabad, IMF officials highlighted the underperformance of Pakistan’s Federal Board of Revenue (FBR) and the ongoing delay in finalizing loans to fill a $2.5 billion financing gap. The global lender has urged the government to expedite talks with Saudi Arabia and China for oil on deferred payments and debt rescheduling, respectively.
A key point of contention in the talks has been Pakistan’s adherence to the National Fiscal Pact, an agreement to align provincial tax laws with federal tax policies. Specifically, the IMF has noted that Punjab’s recent amendments to its Agriculture Income Tax Law are not fully compliant with the pact, which mandates a 45% tax rate on agricultural income. While the provincial government claims its new law addresses the fiscal needs, the IMF insists that it fails to meet the necessary tax targets.
Punjab Information Minister Azma Bukhari rejected claims of non-compliance, stating that the province retains the authority to set tax rates through notifications rather than embedding them directly in law. However, the IMF remains focused on ensuring that both Punjab and Sindh align their tax frameworks with federal standards, including the development of agriculture and property tax systems consistent with the FBR.
Meanwhile, Pakistan’s fiscal position remains under pressure. The finance ministry revised its report on provincial finances, confirming that Punjab has achieved a modest surplus of Rs40 billion for the first quarter of FY 2024-25. However, this still falls short of the agreed target of Rs342 billion for the overall provincial surplus. To make up for this shortfall, the ministry reduced provincial spending by Rs203 billion, largely through adjustments in statistical discrepancies related to provincial investment in federal debt.
The IMF’s staff-level review also expressed concerns over the pace of privatizing Pakistan’s power distribution companies and the amendment of the Pakistan Sovereign Wealth Fund Act, with the IMF pressing for changes by year-end. Additionally, the IMF has stressed the importance of addressing the gas sector’s circular debt and ensuring regular reporting of these figures.
As Pakistan faces a complex economic situation, the IMF’s final assessment of its progress will play a critical role in determining the next steps for securing the full tranche of the financial aid package.
