Pakistan’s performance in meeting goals for the July-September quarter under the $7 billion Extended Fund Facility (EFF) will be the primary focus of the International Monetary Fund (IMF) review of the country’s economic progress.
This month’s review will evaluate Pakistan’s compliance with its obligations and set the tone for the program’s continuation.
Independent economists have criticized the PML-N coalition government for failing to meet key benchmarks, such as revenue targets. This has raised concerns that the IMF may propose additional measures for the October-December quarter that may not be popular.
The upcoming EFF review’s inclusion of the National Fiscal Pact (NFP), which includes the provinces in a unique way, is a notable feature. The goal of the NFP is to set goals for provinces to achieve for increasing health and education spending and tax revenue to cover their costs. There will be increased pressure on provinces like Punjab and Sindh, which currently receive substantial allocations from the federal divisible pool, to raise their own revenues.
The Finance Ministry must be concerned about the ambitious goals that were agreed upon with the IMF because of the government’s mounting pressure. Large-scale manufacturing, import volume, and the Federal Board of Revenue’s (FBR) collection goal have not been met.
Concerns are exacerbated by the NFP’s failure to delegate certain spending responsibilities to the provinces. It is still unclear whether the government will introduce a mini-budget, additional revenue measures, or an IMF waiver to close these gaps.
Miftah Ismail, a former finance minister, has said that the economic goals, especially the FBR’s revenue goals, are too ambitious. He says that a drop in inflation that has slowed to a single digit could cause revenue to drop. During discussions with the IMF, he inquired as to why the decline in inflation was not anticipated. Despite the fact that he proposed the IMF could represent the expansion plunge, he cautioned that the Asset would almost certainly examine the import log jam.
The government’s failure to implement several NFP-related measures will be an important part of the IMF review. Mr. Ismail mentioned that the government had promised the IMF that the costs of the Benazir Income Support Program (BISP), fertiliser subsidies, and provincial development projects funded by the Public Sector Development Program (PSDP) would be transferred to the provinces.