Ongoing IMF review

Reports from discussions between the International Monetary Fund (IMF) and the Pakistani government reveal that the Middle East conflict is hindering economic activity and reducing revenue collections. The IMF team is in Pakistan for the fourth quarterly review of a $7 billion Extended Fund Facility (EFF), the third review of a $1.4 billion Resilience and Sustainability Facility (RSF), and Article IV consultations. The effects of these issues vary across the country, but they are particularly significant for Pakistan.

One reason for the shortfall in anticipated tax collections is the lower than projected import tax revenue, with sales and withholding taxes at the import stage falling short of budget estimates. This might be due to a final filing date of September 30 for non-corporate entities. Furthermore, the implementation of enforcement measures for sales tax collections at factory sites for items like sugar, cement, and fertilizers is contributing to rapidly rising inflation, which threatens the already high poverty rate of 44.2 percent, as determined by the World Bank.

The possibility of the IMF supporting a subsidy scheme for motorcycle and car owners under 800 cc, not eligible for the Benazir Income Support Programme (BISP), remains uncertain. Additionally, the Fund is seeking 174 legislative amendments, out of which two have been enacted. These amendments include new public procurement rules and a mandatory asset declaration regime for around 10,000 federal employees.

The government has also restricted public access to information regarding the assets and liabilities of parliamentarians, including their spouses and dependents.

Despite these challenges, it is crucial for Pakistan to remain on the IMF program, as its $11 billion annual roll-overs from China and Saudi Arabia depend on this participation. However, with poverty levels skyrocketing, it is hoped that both the Fund and the authorities will consider deferring certain conditions. This may require the government to cut its current expenditure by at least 2.5 trillion rupees, thereby increasing its leverage with the IMF.