ISLAMABAD – Pakistan is set to secure over $1 billion from the International Monetary Fund (IMF) under the third tranche of the $7bn Extended Fund Facility (EFF) despite fiscal slippages, missed revenue targets, and flood-related challenges.
The IMF review mission began policy-level talks with Pakistani authorities on Monday after concluding technical discussions. According to sources, the two sides will finalize a couple of waivers before wrapping up the review with Finance Minister Muhammad Aurangzeb by October 9–10.
Power Sector Shows Improvement
Unlike previous reviews, the power sector has shown positive performance, with improved recovery rates and a reduction in circular debt. The improvement comes from the diversion of subsidy allocations and the replacement of loans, helping to ease pressure on the sector.
Revenue Shortfalls and Provincial Slippages
The Federal Board of Revenue (FBR) has missed multiple revenue targets, including a Rs200bn shortfall in Q1 FY26, averaging over Rs65bn per month. Despite a transformation plan and expanded fleet for enforcement, recoveries remain below projections.
The IMF has also raised concerns over Punjab and Sindh, which failed to meet their cash surplus commitments last fiscal year. Punjab was required to deliver Rs740bn, Sindh Rs370bn, KP Rs220bn, and Balochistan Rs155bn. Sindh even presented a deficit budget for FY26, while Punjab has voiced frustration over being held accountable for IMF conditions.
Flood Impact and Agricultural Taxation
The IMF has acknowledged flood-related challenges, signaling some flexibility. However, it has pressed provinces to deliver on agricultural income tax collection, which was legislated last year but has yet to be fully implemented due to the floods. KP and Punjab have pledged to meet flood-related expenses from their own resources.
Gas Sector, SOEs, and Reforms
Talks have also focused on rising circular debt in the gas sector and the benchmarking of state-owned enterprises (SOEs). Issues of asset disclosure and governance remain unresolved.
On refinery upgrades, the IMF has pushed back against tax exemptions sought by the government, citing environmental concerns and the $1.4bn Resilience and Sustainability Facility (RSF) commitments. The Petroleum Division, however, argues that outdated refineries contribute to climate hazards and health risks.
🔗 Related: Aurangzeb Rules Out UN Aid, Says Rs4.3 Trillion Budget Enough for Flood Relief
Outlook and IMF Disbursement
While Pakistan has largely met quantitative performance criteria for June 2025, it has fallen short on indicative targets and structural benchmarks. Despite these gaps, the favorable global political environment and IMF board support are expected to pave the way for the $1bn disbursement in early November 2025.
