IMF team due in May to finalise FY26 budget

ISLAMABAD: The IMF and Pakistan have struck a staff-level agreement (SLA) on the first review under the Extended Fund Facility (EFF) and on a new climate finance under the Resilience and Sustainable Facility (RSF).

The IMF’s Executive Board will consider approval of approximately $2.3 billion in six-week period with expectations that Islamabad will be able to secure the loan amount in the first week of May 2025, ahead of the upcoming budget for financial year 2025-26.

According to the announcement, made by the IMF in wee hours of Wednesday, the IMF staff and the Pakistani authorities reached a staff-level agreement on the first review under Pakistan’s EFF and on a new arrangement under the RSF.

The strong implementation of the EFF-supported programme continues, and the authorities remain committed to advancing a gradual fiscal consolidation to sustainably reduce public debt, maintaining a sufficiently tight monetary policy to keep inflation low, accelerating cost-reducing energy sector reforms to enhance its viability, and implementing Pakistan’s reform agenda to accelerate growth, while strengthening social protection and health and education spending.

The RSF will support Pakistan’s efforts in building resilience to natural disasters, enhancing budget and investment planning to promote climate adaptation, improving the efficient and productive use of water, strengthening the climate information architecture to improve disclosure of climate risks and aligning energy sector reforms with mitigation targets.

An International Monetary Fund (IMF) team, led by Nathan Porter, held discussions during a February 24-March 14, 2025 mission to Karachi and Islamabad, and virtually thereafter, for the first review of Pakistan’s economic programme supported by the Extended Fund Facility (EFF) and on a new arrangement under the IMF’s Resilience and Sustainability Facility (RSF).

At the conclusion of discussions, Porter said in a statement that the IMF has reached a staff-level agreement (SLA) with Pakistani authorities on the first review of the 37-month Extended Fund Facility (EFF) and a new 28-month Resilience and Sustainability Facility (RSF), with total access of approximately $1.3 billion. The agreement is subject to approval by the IMF’s Executive Board, which would unlock $1.0 billion in immediate disbursement under the EFF.

The IMF acknowledged Pakistan’s progress in restoring macroeconomic stability over the past 18 months, including lower inflation, improved financial conditions and a stronger external balance. However, challenges remain, including policy slippages, geopolitical shocks, global financial tightening and climate risks.

The statement said the Pakistani authorities reaffirmed their commitment to economic reforms under both the EFF and RSF, with key priorities including: Fiscal discipline & revenue mobilisation, sustaining fiscal consolidation, broadening the tax base (including Agriculture Income Tax reforms), and enhancing spending efficiency while preserving social safety nets like the Benazir Income Support Programme (BISP).

Monetary policy & exchange rate stability: Maintaining a tight and data-driven monetary policy to control inflation (5-7% target) and ensuring exchange rate flexibility to rebuild foreign exchange reserves.

Energy sector reforms: Continuing tariff adjustments, improving distribution efficiency, privatising inefficient power firms, and expanding renewable energy to tackle circular debt and enhance sector viability.

Structural & business reforms: Strengthening State-Owned Enterprise (SOE) governance, boosting private sector development and reducing trade barriers to foster investment.

Climate resilience & green growth: Prioritising disaster-resilient public investments, water conservation, disaster financing, corporate climate risk disclosure and green mobility initiatives.

The IMF emphasized that sustaining these reforms is crucial to ensuring long-term economic resilience and inclusive growth in Pakistan.

“The IMF team is grateful to the Pakistani authorities, private sector and development partners for their hospitality during the visit to Islamabad and Karachi, and fruitful discussions,” concluded the statement.

Top officials of Shehbaz Sharif led government confirmed to The News on Wednesday that an IMF mission is scheduled to visit Pakistan in early May for finalisation of the budget for FY2025-26, including taxation measures and curtailing unbridled expenditures. The IMF mission would visit Islamabad in May 2025 for discussing the next budgetary framework, though its exact timeframe was not yet firmed up. On the FBR’s tax collection target, the IMF has revised downward revenue collection from Rs12,970 billion to Rs12,334 billion for the current fiscal year, ending on June 30, 2025.

The FBR has been grappling with the challenge to materialise the revenue collection target for March 2025 as some rough estimates suggest that the tax machinery is heading towards another substantial revenue shortfall. The FBR has put a tax collection target of Rs1,220 billion and the expected shortfall is likely to hover around in the range of Rs100 to Rs150 billion for March 2025.

The biggest challenge going to surface before the economic managers is fixing the upcoming FBR’s revenue collection target for the next budget. In the IMF document, the FBR’s tax collection target was envisaged at Rs15,070 billion for 2025-26, but after reduction in the target for the outgoing fiscal year 2024-25 to Rs12,334 billion, the next fiscal year’s target might also be slashed down in the range of Rs14,500 or Rs14,600 billion.

With nominal growth of 10 to 11 per cent, the FBR’s tax collection could fetch Rs13,600 billion, so the challenge for the government will be finding out areas to impose taxes of Rs1,000 to Rs1,200 billion in the budget for 2025-26 for fixing the target.

Meanwhile, Prime Minister Shehbaz Sharif said on Wednesday the staff-level agreement with the IMF marked a significant milestone in further stabilising the country’s economy and also commended the economic team’s work for the achievement.

The PM, while chairing the cabinet meeting, highlighted that the IMF programme includes RSF worth $1.3 billion, alongside the $7 billion Extended Fund Facility, bringing the total to $8.3 billion. He praised the cabinet members and government officials for their commendable efforts in achieving 26pc increase in tax collection.

About criticism of the opposition, which predicted that a mini-budget would be necessary to secure the deal, the prime minister asserted that the agreement was achieved without taking additional taxation measures, proving the government’s resolve and planning.

He also acknowledged the hardships faced by the common people who bore the burden of price-hike during the process of achieving economic stability. Besides, he paid tribute to salaried persons who contributed a major portion to tax collection.

The PM underscored that peace and eradication of terrorism were essential prerequisites for the country’s development and progress. He stressed the importance of boosting the morale of security forces.

Federal Minister for Finance, Senator Muhammad Aurangzeb on Wednesday hinted at the strong possibility of Pakistan issuing Panda Bonds in Yuan this year to access China’s vast and deep capital market, according to APP.

In an interview with Chinese media outlets, including CGTN English and China Daily, the minister said, Pakistan has previously issued bonds in US dollars and Euros, and now is the time to benefit from the Chinese capital market.