Less than two years into Pakistan’s ongoing 37-month IMF programme and the signs are already emerging that it is proving too much for the country to handle. The current account is back in deficit territory, FDI is down 43 per cent, growth is anaemic and the government is struggling to meet revenue collection targets. In this context, it is perhaps not surprising that the country is reportedly set to request the IMF for some leniency and to move towards renegotiating its deal for the remaining period of the Fund-sponsored programme. Islamabad apparently requires some breathing space for the next budget for fiscal year 2026-27. Given that Pakistan is now on its 24th IMF programme and has not had any great success with the previous 23, some might argue that the IMF has already been pretty lenient. Others would point out that the IMF approved a third tranche for Pakistan last year despite the failure to meet revenue-collection targets. That being said, the conditions of this particular programme have been quite brutal for ordinary people. Utilities tariffs and taxes have gone up, salaries have remained stagnant and while inflation has declined significantly from its peak, most Pakistanis are still struggling with the cost of living. A relaxation in the programme might be just what everyone needs, but there is not much time to get one through. The next IMF review mission is expected to visit Pakistan by the end of February or early March to undertake the third review under the $7 billion EFF programme and to release the fourth tranche.
This upcoming review would finalise the budgetary framework for Budget 2026-27. If this next budget hits ordinary people the same way the last one did, then the government might seriously risk pushing people a bit too far and each month that passes brings us closer to the next elections, whatever the exact date may be. But while some relaxation in the programme might be desired, it is necessary to ask why the country needs one after having endured so many tough measures. Why is tax collection still such a challenge and why has the reform programme, PIA privatisation aside, largely stalled? And why has none of the stability that the government has achieved resulted in growth, particularly the export-led growth that the country desperately needs. While some in the government feel that the economy is heading towards the right direction and are projecting that GDP growth might pick up and move towards 4.0 per cent, the conditions on the ground for most people seem largely unchanged. And what do these proposed renegotiations say about the government’s ambitions not to seek another IMF loan?
The high-powered committee, led by the deputy prime minister, to develop a strategy for this goal has thus far discussed proposals, including export-led growth, boosting investment, and further industry incentives, such as lower power tariffs. The new industrial policy has also proposed a reduction in the super tax to 5.0 per cent over four years, with the tax being abolished in the fifth year if a primary surplus is achieved, and raising the minimum income threshold for the manufacturing sector, subject to a super tax from Rs200 million to Rs500 million. The IMF has yet to approve the industrial policy and it is hoped that it will be included in any breathing space that the Fund agrees to offer. But even if this space is granted, it will likely not be a difference maker. That remains the government’s ability to carry out tough but necessary reforms, and the longer this process is delayed, the more the country will find itself short of breathing space.
