Review of the IMF programme

This is the appropriate time to review progress on implementation of the reforms committed to the IMF in the new IMF Extended Fund Facility of 5,320 million SDRs, equivalent to approximately USD 7 billion.

The IMF review mission is targeted for March 15, 2025, and will focus on the quantitative performance criteria, indicative targets and structural benchmarks of end-December 2024. The objective of this article is to focus on performance in the relation to the targets of end-December 2024.

The first quantitative performance criterion for end-December 2024 is the floor on international reserves of the SBP at USD 12,050 million. The actual foreign exchange reserves of the SBP as of the 27th of December were USD 11,710 million. Therefore, there is only a minor deviation from the target. This has been facilitated by a current account surplus of $944 million, as compared to a deficit of USD 1676 million in the corresponding period of 2023-24.

The second performance criterion of importance is the ceiling on the general government primary budget deficit. The expectation was a surplus of Rs 198 billion in end-September 2024. The actual outcome was much better at Rs 3,202 billion. This was largely due to the transfer to the federal government the surplus profit of the SBP of a very large Rs 2,500 billion. However, even in the absence of this large transfer, the primary surplus would have been Rs 702 billion, much higher than the surplus agreed with the IMF.

The targeted primary surplus in end-December 2024 is expected to be Rs 2,877 billion. This is highly likely given the above mentioned lumpy transfer earlier by the SBP.

There is a floor on targeted cash transfers under BISP at Rs 101 billion at end-September 2024 and at Rs 235 billion as of end-December 2024. There has recently been a welcome announcement of enhancement in the per recipient cash transfer quarterly from Rs 10,500 to Rs 13,500. Also, the number of beneficiaries is being increased from 9.3 million to 10 million. These are welcome steps and will ensure the full spending of the targeted outlay.

The IMF programme also includes a target on the minimum number of new tax return filers. It is 225,000 as of December 2024. Apparently, this target has been exceeded with the number of new returns at almost 400,000.

Turning to indicative targets, we focus on the performance in targets on which information is available.

The first such indicative target is on the size of the cash surplus of the four Provincial governments combined. The target is Rs 342 billion as of end-September and Rs 750 billion at the end of December 2024.

The actual provincial cash surplus was Rs 360 billion as of end-September, and the target was met. However, as of the 20th of December, the SBP reports the provincial cash surplus at Rs 472 billion. This is still Rs 278 billion short of the target for end-December.

A key indicative target is of the tax revenues to be collected by the FBR. The end-September target was Rs 2,652 billion and the actual collection was Rs 2,563 billion. The target for end-December is Rs 6,009 billion. There are preliminary reports that the FBR revenues aggregated to Rs 5,623 billion, implying a growth rate of 26%.

However, there is a significant shortfall already of Rs 386 billion as of end-December. If the growth rate remains at 26% as compared to the target growth rate of 40 percent, then the shortfall will approach the large magnitude of over Rs 1400 billion by the end of 2024-25. The March IMF review will clearly focus on how the FBR revenue target for 2024-25 is to be achieved.

The other revenue related target is that of tax collection by the provincial governments. It is Rs 184 billion for end-September and Rs 376 billion for end-December. Apparently, the target for September was achieved with actual collection at Rs 213 billion.

There is one specific revenue target relating to tax collection from retailers under the Tajir Dost scheme of Rs 23.4 billion by end-December. However, the actual tax collection has been only marginal.

There is a ceiling also imposed in the IMF programme on power sector payment arrears. This is to be limited to Rs 461 billion as of end-December 2024. There are indications that this ceiling may be violated in the presence of a decline in the level of electricity consumption in the country, leading thereby to lower revenues.

There are also a series of structural conditionalities in the IMF Programme. One such reform relates to the approval of a National Fiscal Pact devolving some spending functions to the provinces. In addition, there was a commitment to share with the IMF staff by end-September 2024 a report detailing actions to reduce the federal government’s footprint. It is unlikely that these steps have been fully undertaken.

There is expectation also of a major reform in the agricultural income tax law by end-October 2024, followed by full implementation of the new law by January 1, 2025. This has not happened in all the four provinces.

There is a series of other commitments to be implemented by end-December 2024 or early 2025. These include the preparation of two Discos for privatization and elimination of captive power usage in the gas sector. Also, there is an amendment of the SWF Act and resort to other legislation by end-December 2024 to improve SOE governance.

Overall, we have witnessed a mixed performance with respect to achievement of performance criteria, indicative targets and structural conditionalities as of end-December 2024. The IMF Review Mission is due in March 2025 to assess this performance. It is crucial that the review is completed successfully.

There is a need to highlight that there has been one development recently which can further complicate the relationship with the IMF. A series of macroeconomic targets have been agreed for 2024-25, 2025-26 and 2026-27 with the IMF. The GDP growth rate is expected to be 3.2 percent in 2024-25, 4 percent in 2025-26 and 4.1 percent in 2026-27.

However, the government has announced the Uraan Plan, with a targeted GDP growth rate of 6 percent over the next four years. This will require substantially more expansionary monetary and fiscal policies than envisaged in the IMF Programme. The fundamental question is whether this will be acceptable to the IMF in the presence of the continuing high level of external financial vulnerability of Pakistan.

Overall, the outcome of the March review by the IMF remains uncertain in view of some major shortfalls and continued lack of implementation of a number of key reforms.

Copyright Business Recorder, 2025