IMF: both a problem and a solution?

The country is currently under the 23rd IMF programme — a US$ 7 billion, 37-month Extended Fund Facility (EFF) arrangement — which has provided critical support to avert external default. The IMF mission is currently in Pakistan to review performance for the release of the next tranche of US$ 1 billion.

Pakistan’s reliance on the International Monetary Fund (IMF) has become a recurring necessity, with the country seeking a bailout from the global lender of last resort every three years.

It has repeatedly been debated if the IMF’s prescription is truly a cure for our deep-rooted economic ailments, or it’s merely delaying the next economic crisis? The question invariably gets entangled in bouts of arguments for and against IMF by the economists of the country and a categorical answer could never be found.

Amidst this ambiguity, what is certain is that IMF has become an addiction and a choice of convenience for the government of the day to fund deficiencies in the governance systems with impunity and at ease.

Interestingly, every IMF programme advocated fiscal and economic reforms but it never set the red lines to ensure its compliance, thereby providing space to the government to have its way.

The best of the achievements of the programme have been some adjustments in fiscal discipline, taxation regime, tariffs and subsidies adjustments and attempts to rope in more into tax net.

Whereas, no meaningful progress has been made in reforming the crumbling capacity of the government to enhance its revenue generation capacity and a viable mechanisms to manage expenditure and losses.

Two examples are enough to set this reality straight. One has to do with government intent to enhance its revenue generation capacity and the other to control and manage government expenditure and losses.

IMF identified agriculture sector as a key source which could significantly enhance tax collection capacity of the state. In this regard, the government’s intentions to deliver on it were put to test. The result speak for itself.

Despite enabling legislation passed by all the four provincial assemblies on agriculture income tax (AIT), ongoing review talks with the International Monetary Fund (IMF) have yet to achieve clarity on its implementation mechanism for effective collection, targeted to take effect from July 1, 2025. This is the central theme of the IMF bailout programme.

During negotiations with IMF it emerged that despite commitments for enhanced data sharing, the federal and provincial governments have yet to exchange negative and positive lists for general sales tax (GST), a matter of concern for the IMF, and that IMF may now need to provide a broad policy framework with FBR support.

Sindh informed the IMF mission that its assembly had passed the AIT law despite political challenges, but the province was not yet prepared for collection. Sindh requested IMF’s guidance on a way forward, which could then be discussed with other provinces for uniformity.

At present, Punjab and Sindh have exempted agricultural land holdings below 12.5 acres and 25 acres, respectively, from AIT. The two provinces would need to align their exemption thresholds with IMF involvement and Federal Board of Revenue’s (FBR’s) support.

Khyber Pakhtunkhwa’s representatives reported that 75-80 percent of agriculture in the province falls outside AIT coverage due to smaller land holdings, with few landowners meeting the 12.5-acre threshold set by Punjab. Additionally, agricultural incomes below Rs 600,000 remain exempt from taxation.

IMF may now need to provide a broad policy framework with FBR support.

All this means a delay of couple of months if not years. It is apparent that the nation will not get benefitted from the much-needed tax revenue out of the agriculture sector anytime soon.

Moving to the example of the state intention to manage and control expenditure and losses, IMF identified the crumbling power sector of the country and the loss-making state owned enterprises (SOEs) being responsible for it. Here, too, the government’s intention to deliver was put to test. The result once again speak for itself.

IMF has been pressing on the restructuring and privatization of SOEs, including the ones in the power sector. IMF has now been informed that at least seven state-owned entities, including Pakistan International Airlines, would be privatised.

The government is reported to have pledged to the Fund that it would sell the national flag carrier, three power distribution companies— Faisalabad, Islamabad, and Gujranwala power distribution companies—, First Women Bank Limited, Zaria Tariqi Bank Ltd (ZTBL) and House Building Finance Company.

Interestingly, the sale of all these entities has been earmarked to be accomplished in 2025. This appears highly unrealistic considering that many of them are in the initial stages of privatisation process.

Despite repeated commitments, privatisation of major entities such as PIA, DISCOs and Pakistan Steel Mills is yet to take place. The task of privatisation has been hamstrung by lack of political will, an ineffective privatisation framework and bureaucratic inefficiencies for more than two decades.

While the SOE Act 2023 was enacted and an oversight mechanism through the Cabinet Committee on SOEs has been established, implementation of governance reforms in the SOEs remains extremely slow and challenging.

Without accelerated privatisation and governance reforms, loss-making entities will continue draining public resources. In the meantime, the SOEs suffered a loss of Rs 852 billion over the last two years.

Seemingly unwarranted flexibility of IMF in relation to its compliance methodology and the government’s lack of commitment to deliver meaningfully and whole-heartedly remain a challenge for the country to move successfully out of an IMF programme.

Copyright Business Recorder, 2025