Pakistan’s $7 billion IMF deal: key conditions at a glance

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement for a $7 billion Extended Fund Facility (EFF) programme. This deal imposes significant short-term burdens on the nation and ends long-standing protections for agriculturists and exporters, Express Tribune reported on Sunday.

The IMF announced the three-year 24th programme after Pakistan agreed to bring transparency to the Pakistan Sovereign Wealth Fund and stop preferential treatment for projects by the Special Investment Facilitation Council (SIFC).

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The federal and provincial governments will sign a new National Fiscal Pact to align spending with the 18th Constitutional amendment. The IMF confirmed that Pakistan and the IMF team have reached a staff-level agreement on a programme endorsed by both federal and provincial governments. This agreement is subject to approval by the IMF’s Executive Board and confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.

An IMF team visited Pakistan in May, with virtual discussions continuing until this week, focusing on the Pakistan Sovereign Wealth Fund and a proposed 45 per cent income tax on agriculture. The coalition government has imposed new taxes of over Rs 1.7 trillion and increased electricity prices by Rs 7.12 per unit to collect additional Rs 580 billion.

Pakistan had sought an $8.2 billion loan package, but the IMF agreed to nearly $7 billion, to be disbursed over 37 months. Prime Minister Shehbaz Sharif has promised this will be the last programme.

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IMF Mission Chief Nathan Porter stated that the new programme aims to support Pakistan’s efforts to maintain macroeconomic stability and create conditions for stronger growth. The measures aim to strengthen fiscal and monetary policy, broaden the tax base, improve State-Owned Enterprises’ management, strengthen competition, and enhance social protection through the Benazir Income Support Program (BISP), the Tribune report said.

The programme requires strong financial support from Pakistan’s development and bilateral partners. Porter stated that the programme aims to build on the macroeconomic stability achieved over the past year by strengthening public finances, reducing inflation, rebuilding external buffers, and removing economic distortions to spur private sector-led growth.

Key policy goals include sustainable public finances through fiscal consolidation, increasing resources for development and social spending, and bringing net income from the retail, export, and agriculture sectors into the tax system.

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Provinces will increase tax collection efforts, including sales tax on services and agricultural income tax. Legislative changes will harmonise provincial Agriculture Income Tax regimes with federal personal and corporate income tax regimes by January 2025.

For the first time, serious efforts are being made to bring agriculture income into the tax system with a rate of up to 45 per cent. The IMF has also facilitated a National Fiscal Pact to devolve higher spending for education, health, social protection, and regional public infrastructure investment to provincial governments.

The federal government has committed to maintaining a flexible exchange rate and improving the foreign exchange market. Pakistan will timely increase electricity prices, avoid unnecessary expansion of power generation capacity, and undertake targeted subsidy reforms.

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Pakistan has also committed to ending state protections for certain initiatives and creating a level playing field for all businesses. The country will prioritise the privatisation of profitable SOEs, enhance transparency and governance around the Pakistan Sovereign Wealth Fund, and gradually withdraw incentives for Special Economic Zones and agricultural support prices.

Pakistan will advance anti-corruption measures, governance reforms, and gradually liberalise trade policy.