Pakistan sets course for IMF compliance, eyes $1 billion tranche

ISLAMABAD: Pakistan is on track to meet the key conditions of the International Monetary Fund (IMF) programme to secure the next $1 billion tranche, according to Khurram Schehzad, Advisor to the Finance Minister.

While speaking to Nukta.com in an interview,  he highlighted that significant targets have been achieved, including a primary balance surplus, provincial surpluses, and increased provincial revenue collection.

An IMF delegation is expected to arrive in the first week of March to assess the economic situation, including the operations of power and distribution companies, the privatization of state-owned enterprises, the social protection plan, central bank policies, and revenue collection goals.

Pakistan’s revenue collection target for the first seven months of the current fiscal year fell short by Rs386 billion, with December’s tax collection missing the target by Rs47 billion.

To enhance revenue collection, the government is implementing various initiatives, such as amending laws to prevent non-filers from engaging in financial transactions, aimed at expanding the tax base. Schehzad noted that a key condition already met is the passage of agriculture tax laws by all four provinces, which introduced multiple tax slabs based on farm earnings.

Despite some challenges, the government is diligently working on a comprehensive plan to successfully complete the IMF review.

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Regarding inflation, it peaked at a historic 38 percent in May 2023 but began to decline starting January 2024. By the end of the seven-month period of the current fiscal year, the inflation rate was recorded at 6.5 percent, down from 28.7 percent during the same timeframe the previous year. This drop allowed the State Bank of Pakistan to reduce interest rates significantly, slashing them by 1,000 basis points starting June 2024, bringing them down to a two-year low of 12 percent.

Schehzad said that the government is keeping food and essential product prices stable to accommodate the general population. Economic growth is projected to exceed 3% in FY25, up from 2.4 percent in the previous year. Last month, the State Bank indicated that economic activity would continue to gain momentum, with real GDP growth expected to stay within a range of 2.5 percent to 3.5 percent.

Schehzad also mentioned that the current account is on target and may remain within the limits set by the government. In the first six months of the current fiscal year, the current account showed a surplus of $1.2 billion, a turnaround from the $1.4 billion deficit recorded over the same period last year.

The central bank anticipates that the current account will remain balanced, fluctuating between a surplus and a deficit of 0.5 percent of GDP for FY25.

To reduce expenditures, the government is undertaking several measures, including streamlining the federal government and reforming pensions, energy sectors, state-owned enterprises, and civil services.