The federal and provincial governments have approved a comprehensive program that the Pakistani authorities and the IMF team have agreed upon at the staff level. This program may be funded by a 37-month Extended Fund Arrangement (EFF) in the amount of SDR 5,320 million, or roughly US$7 billion at current exchange rates.
This agreement is contingent upon the Executive Board of the IMF approving it and Pakistan’s development and bilateral partners quickly confirming the requisite finance assurances.
According to Nathan Porter, the head of the IMF mission in Pakistan, “the program aims to capitalize on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers, and remove economic distortions to spur private sector-led growth.”
This entails actions to fortify monetary and fiscal policies as well as reforms aimed at widening the tax base, enhancing the management of State-Owned Enterprises (SOEs), bolstering competition, ensuring level playing fields for investment, improving human capital, and expanding social protection via expanded eligibility and generosity for the Benazir Income Support Program (BISP).
The $3 billion rescue package for Pakistan was authorized by the IMF earlier this year, with the final $1.1 billion tranche being released immediately. The authorities want to enhance tax collections by allocating 0.5 percent of GDP in FY25 and 3 percent of GDP throughout the program. Specifically, the newly passed FY25 budget aims to achieve an underlying primary surplus of 1% of GDP (or 2% in headline terms) for the general government.
Fairer and more straightforward direct and indirect taxation will be used to promote revenue collection. This will include correctly incorporating net income from the retail, export, and agricultural sectors into the tax code. Simultaneously, the FY25 budget allocates more funds to enhance social protection via raising education, health, and BISP coverage and generosity.
