The upside of IMF engagement

While the economists and critics of the country widely debate the downside of the IMF (International Monetary Fund) programme, very little is said about its upside.

In case of Pakistan, notwithstanding the fact that the downside of the IMF programme is severe and inevitable, out of these compulsions, a kind of upside of the IMF programme has also surfaced.

The IMF has checkmated the government of the day to do which no government of the past volunteered to do it mainly due to political expediency. In focus is the enforcement of tax on agriculture income in conformity with corporate tax on industry and businesses, downsizing of superfluous structure of government entities and ministries and privatization of loss-making public sector enterprises.

A number of previous IMF programme included these conditions but the government of the day managed to go around it and IMF overlooked its compliance.

But, the current IMF programme is not letting it go this time and the government knows too well that IMF means business and the government has no choice but to comply with the lender’s stipulations or conditions.

In March 2025, the government and IMF are due to hold first review of the Extended Fund Facility (EFF) programme, which was negotiated in September 2024. The government, as always at the last hour, is dressing up to get the compliance of IMF conditions into order.

The country’s perception has been that the taxable agriculturist, dominating both the houses of parliament, are powerful enough to stay exempted from income tax for all time to come. But not this time.

The Sindh Assembly this Monday unanimously adopted a landmark Sindh Agriculture Income Tax Bill 2025, with the treasury hoping the step will help the province cope with the fiscal challenges facing the government.

Sindh Chief Minister Syed Murad Ali Shah said the legislation was passed by the Assembly after the federal government “cornered” Sindh.

Assailing the Federal Board of Revenue (FBR), he said that this law was introduced out of necessity to avoid affecting the agreement with the Fund.

The Chief Minister cautioned that implementing the new tax could fuel inflation, and hike in the prices of vegetables, wheat and rice.

Likewise, he complained about the discriminatory statistics in the NFC (National Finance Commission) Award share for his province, which is 24.55 percent compared to 52.74 percent of Punjab.

It is learned that Punjab, Khyber Pakhtunkhwa and Balochistan have also enacted the necessary law on agriculture income tax.

It is common knowledge that the global lender had made it a prerequisite to slap tax to the tune of 45 percent on agri-income for the intended bailout package.

However, in the absence of proper digitisation of land and lack of correct estimates of acre per yield, the tax collection might hang in the balance.

As a consequence of downsizing the government structure, Pakistan Railways is reported to have terminated 18 percent of its staff as part of its efforts to improve performance and align with the reform agenda ordained by the International Monetary Fund (IMF), Prime Minister Shehbaz Sharif was informed this Monday.

During a meeting chaired by the Prime Minister to review the performance of the Railways sector, the premier directed the organisation to modernise its operations. He underscored the need for attracting passengers by offering competitive and improved travel services through public-private partnerships.

There is slow-peddling on meeting the IMF conditions of privatisation of loss-making public sector enterprises - again on account of nothing but political expediency. The Prime Minister has emphasised that privatising state-owned enterprises (SOEs) is integral to the Uraan Pakistan economic reform and transformation initiative. “I am personally overseeing the privatisation efforts, and no delays will be tolerated,” he added.

Having noted the upside of IMF programme, its downside cannot go unnoticed; it is rather very scary.

Pakistan’s public debt has remained above the sustainable level in the last fiscal year, thereby violating an Act of Parliament due to higher interest expenses, which also neutralised the benefits of exchange rate stability and reductions in other expenditures, states a new government report.

The Debt Policy Statement 2025 from the Ministry of Finance officially confirmed that the government could not bring down the debt level to 56.75% of the size of the economy by the end of the last fiscal year.

The limit had been set for the fiscal year 2023-24 under the Fiscal Responsibility and Debt Limitation Act. For this fiscal year, the ceiling will be further tightened to 56%.

Looking at the prevailing fiscal and economic dynamics in the country, it appears IMF is here to stay and is inevitable. The best one can get out of it is to capitalize on the upside of the programme and work out to minimise its downside.

Copyright Business Recorder, 2025