With the IMF having approved two tranches for Pakistan on Monday, the country can expect another $1.29 billion in the bank by the end of this week. The approval follows the conclusion of staff level agreement on the second review of the 37-month EFF arrangement and the first review of the 28-month RSF arrangement back in October and the publication of the less-than-glowing Governance and Corruption Diagnostic (GCD) Assessment Report last month. With the trade deficit climbing again, the $1.29 billion will provide a much needed injection for the country’s foreign reserves and additional cover for fast-growing imports. Total disbursements under the IMF programme have now reached $3.3 billion out of an overall commitment of $8.4 billion. As such, the halfway point of the country’s ongoing programme is not far off. What does the country have to show for it thus far? While the government has focused on how the IMF approval highlights the country’s progress in implementing the measures necessary for economic stability and growth, there has been far more of the former as compared to the latter. The 3.2 per cent growth the IMF projects for the current fiscal year barely keeps pace with population growth. And while the nation’s accounts might be in better shape than they have been in a while, the same cannot be said of the country’s households.
The higher taxes and utility tariffs that have accompanied the IMF programme have disproportionately fallen on the shoulders of ordinary salaried workers, who reportedly poured Rs130 billion into the national treasury in the first quarter of the ongoing fiscal, up from Rs110 billion during the same period in the previous fiscal. This is compared to around Rs71.1 billion from retailers, wholesalers and exporters combined. And yet, despite all the tax increases, the state is still struggling to meet its revenue collection targets, with a Rs274 billion shortfall in tax collection over the first quarter of FY26. Right now, it seems more likely that the gap will get bigger over the short run rather than smaller. So growth and revenue collection have not really been sorted. What about inflation? This is the area where the country has made the most progress based on the numbers. After experiencing double-digit inflation in FY24, inflation is expected to clock in at a much more manageable 6.3 per cent in FY26. However, few people would say that cost-of-living is currently manageable in Pakistan and the post-flood inflation spike indicates that, even with the IMF programme, Pakistan remains vulnerable to inflationary swings.
As concerns deeper reforms like privatisation and encouraging investment, there does not appear to have been much progress at all. Foreign direct investment has actually fallen by around 26 per cent over the first quarter of FY26 and the privatisation programmes remain stalled. None of this is to dismiss the very real gains that the government has made in stabilising the economy. However, the point is now coming where Pakistan will have to transition from being a stable economy to a dynamic and competitive one. Similarly, while it is good that the authorities appear to have built a tax-compliant culture among ordinary Pakistanis, this culture now needs to include the retailers, wholesalers, large farmers and others who have historically been let off the hook. In this context, the government’s continued commitment to widening and deepening the tax net are encouraging. The banner of stability can only be brought out so many times before it gets worn.
