ISLAMABAD: Pakistan has agreed with the International Monetary Fund (IMF) to increase tax rates on fertilizers, pesticides and sugary items, as well as raise the GST rate to the standard 18 percent on selected goods.
The measures come as part of efforts to complete the second review and secure the third tranche of $1 billion under the $7 billion Extended Fund Facility (EFF), along with the first tranche of $200 million under the $1.4 billion Resilience and Sustainability Facility (RSF).
In its recently released staff report, the IMF projected that the Balance of Payment gap will continue to widen from the current fiscal year, reaching $3.253 billion by 2029-30, after the existing programme concludes. This projection signals that Pakistan may require another IMF programme in the near future.
The staff report says that contingency measures provide an important safeguard against fiscal risks. If revenue were to fall short of expectations by end-December 2025, the Pakistan authorities plan to adopt additional measures to safeguard the fiscal targets, including increasing excises on fertilizers and pesticides by five percentage points, introducing excises on high-value sugary items, and broadening the sales tax base by moving select items to the standard rate. They are also prepared to reduce or postpone spending in response to lower revenues.
The government has also assured the Washington-based lender that it will fully deregulate the sugar sector, continue tariff adjustments in the power sector and reduce system losses and cut costs. A nationwide installation of point-of-sale systems for 40,000 large retailers will be completed over the next two years, while all the four provinces will move toward harmonised sales tax procedures.
The IMF report notes that during the current fiscal year, Pakistan will restrict spending on new development schemes to 10 percent of the PSDP and will prioritise completion of around Rs2.5 trillion worth of ongoing projects.
From the next fiscal year, greater focus will be placed on climate-related development schemes. Public procurement will shift to digital epads, with the Auditor General mandated to submit a compliance report to the president by March 2026.
Under the social protection pillar, the Kafalat cash transfer under the BISP programme will increase to Rs14,500 per quarter from January 2026, while the number of beneficiaries will be expanded to 10.2 million families. Biometric verification for payments will remain mandatory, and the long-awaited e-wallet system will be launched by June 2026.
On energy reforms, the IMF has noted that the government has already decided to shift annual tariff rebasing from July to January 2026. Last fiscal year, the circular debt stock was reduced to Rs1.614 trillion. By January 2026, the government aims to settle Rs1.2 trillion owed to commercial banks, out of which Rs660 billion will go to Pakistan Private Holdings Limited and the rest to Central Power Purchasing Agency. The plan also includes eliminating Rs128 billion in interest payments owed to IPPs and keeping the circular debt at zero inflow until fiscal year 2031.
The Fund highlights that 5.2 million income tax returns were filed in FY2024, while the number is expected to reach 7 million in FY2025. It acknowledges Pakistan’s progress on stabilisation, noting improvements in foreign exchange reserves, which have risen to $14.5 billion, and a 1.3 percent primary surplus delivered in FY2025. Inflation is projected to ease to seven percent in the current fiscal year.
At the same time, the IMF warns that the 2022 floods highlighted Pakistan’s deep climate vulnerability, having affected seven million people and claiming nearly 1,000 lives, while causing extensive losses to infrastructure, homes and livestock. The report urges stronger climate adaptation measures, improved water management and disaster preparedness.
The global lender has also stressed sustained reforms in taxation, governance, state-owned enterprises and energy to secure long-term growth. It says Pakistan must widen the tax net, simplify tax procedures, ensure data transparency, and maintain strict monetary policy to keep inflation stable. Strengthening forex market transparency and reducing policy uncertainty are also essential.
The report concludes that Pakistan’s economic recovery remains fragile but is moving in the right direction under the current programme. Stronger reforms and consistent policy implementation, it notes, will be critical for lowering debt, raising revenue and sustaining growth in the years ahead.
