Pakistan Meets IMF’s Fiscal Targets but Fails on Tax Collection and FBR’s Performance
IMF Review in March to Decide $1 Billion Loan Tranche
ISLAMABAD: Pakistan has successfully met three out of the five major fiscal conditions set by the International Monetary Fund (IMF) for the first review of the $7 billion loan program, according to a report released by the finance ministry. The country’s improved performance by both the federal and provincial governments has helped meet key targets, though concerns remain over the performance of the Federal Board of Revenue (FBR).
The finance ministry’s fiscal operations summary for the July-December period of the current fiscal year revealed that the federal government surpassed the IMF’s primary budget surplus target by reporting a surplus of Rs3.6 trillion, equivalent to 2.9% of the country’s GDP. This higher surplus was largely driven by a one-time profit of Rs2.5 trillion booked from the State Bank of Pakistan (SBP) in the first quarter.
In addition, the four provincial governments collectively achieved a cash surplus of Rs776 billion, exceeding the target of Rs750 billion. Provincial revenue also surpassed the goal, reaching Rs442 billion, compared to the target of Rs376 billion.
However, the FBR’s performance remained a key issue. The board fell short of two crucial targets: it failed to collect over Rs6 trillion in taxes, falling short by Rs384 billion, and it also failed to generate Rs23.4 billion in taxes from traders under the Tajir Dost Scheme. The FBR’s collection stood at Rs5.624 trillion for the first half of the fiscal year.
Despite these challenges, Finance Minister Muhammad Aurangzeb confirmed that the IMF team is expected to arrive in March for the first review of the program, which will determine the release of a $1 billion loan tranche. Sources suggest that the FBR may attempt to negotiate a reduction in the annual tax collection target, citing the current economic conditions as a barrier to achieving the set goal.
On the provincial front, Punjab generated a surplus of Rs333 billion, with total revenue of Rs1.9 trillion. Sindh reported a cash surplus of Rs264 billion, and Khyber Pakhtunkhwa (K-P) recorded a surplus of Rs86 billion, though K-P’s finance advisor raised concerns about the federal government’s adjustment of its surplus. Balochistan reported a surplus of Rs91 billion.
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Pakistan has agreed to around 40 conditions under the IMF program, including the requirement for provincial governments to generate a combined cash surplus of Rs1.217 trillion this fiscal year. With the provincial targets already surpassed, the focus now shifts to the performance of the federal government, particularly the FBR.
On the expenditure side, the federal government spent Rs8.2 trillion in the first half of the year, with current expenditures reaching Rs7.7 trillion, a 22% increase from the previous year due to rising interest payments. The federal government paid Rs5.1 trillion in interest costs, which was a significant increase from the previous year.
The fiscal report highlights the critical role of effective tax collection and revenue generation in ensuring the success of Pakistan’s fiscal and economic reforms, especially in light of the ongoing IMF program.
