Talks inconclusive as Fund flags budget gaps, outstanding issues on taxes, payouts
The government wants to accelerate economic growth to lower rising poverty and unemployment, but the IMF was of the view that Pakistan has not yet reached a stage where it can afford sustainably higher economic growth. PHOTO: Reuters
ISLAMABAD:
The International Monetary Fund (IMF) said on Thursday that policy discussions with Pakistan would continue in the coming days to reach a consensus on a staff-level agreement for the $1 billion tranche amid the global lender’s concerns over large fiscal discrepancies in budgets.
In a statement issued after the talks remained inconclusive, IMF Mission Chief Iva Petrova said that while considerable progress was made in the discussions, they would continue in the coming days. Petrova said that the IMF would fully assess the impact of recent global developments on Pakistan’s economy and the Extended Fund Facility (EFF)-supported programme.
She further said that considerable progress was made on sustaining fiscal consolidation to strengthen public finances; maintaining a sufficiently tight monetary policy to ensure inflation remains durably within the State Bank of Pakistan (SBP)’s target range; and advancing reforms to improve the viability of the energy sector. Sources said that among the outstanding issues were dividend earnings from the National Bank of Pakistan (NBP), the Pakistan Development Fund (PDFL) and the tax target of the Federal Board of Revenue (FBR). The IMF mission had also expressed concerns over huge fiscal discrepancies in the federal and provincial budgets. The IMF wanted to send a technical mission to address the discrepancies, they added.
For the first half of the fiscal year, the finance ministry reported a Rs413 billion fiscal discrepancy, including Rs71 billion in the books of the federal government. The primary reasons for the federal discrepancies were an increase in commercial bank deposits, variations on account of time lag in reporting and book adjustments among the SBP, FBR and Economic Affairs Division (EAD). The IMF had also raised questions about spending on the Daanish schools and their booking by the federal government.
Petrova said that discussions also covered the impact of the conflict in the Middle East on Pakistan’s economic outlook, the balance of payments and external financing needs amid volatile and rising energy prices and tighter global financial conditions. The IMF team and the authorities will continue these discussions with a view to concluding them in the coming days, she added.
The staff-level agreement for the approval of the $1 billion fourth loan tranche under the EFF and the $220 million under the Resilience and Sustainability Facility (RSF) should have been reached by March 11 – the last day of the talks.
The IMF said that the $7 billion programme implementation under the EFF remained broadly aligned with the authorities’ commitments through end-February 2026. Petrova said that particular attention was paid to deepening structural reforms, given the authorities’ emphasis on accelerating growth alongside efforts to strengthen social protection and rebuild health and education spending. These discussions are ongoing.
The government wants to accelerate economic growth to lower rising poverty and unemployment, but the IMF was of the view that Pakistan has not yet reached a stage where it can afford sustainably higher economic growth. The finance ministry told the Senate Standing Committee on Finance on Thursday that the Middle East conflict would not have significant negative implications for the external account.
The implications of the conflict have primarily been witnessed through temporary global oil price hikes, which may pose some downside risks to the external account, said the ministry. However, it added that higher oil prices would transfer windfall gains to our remittances.
“Based on the seven months’ growth in remittances this year, it is expected that remittances may surpass the annual plan target of $39.4 billion by the end of the year, which will cushion the external sector and finance the import bill,” said the finance ministry.
The ministry claimed that Pakistan was steadily moving towards greater self-sufficiency in essential food items. Last year, the country imported $891 million worth of pulses and $3.7 billion worth of edible oil. The ministry said that the war has not impacted inflation targets and inflation would still remain within the range. Average inflation during the first eight months of FY2026 stood at 5.5%, well below the target of 7.5% approved by the National Economic Council (NEC), it added.
Under a normal scenario, inflation is expected to remain within the range of 5.5-6.5% in fiscal year 2026. A higher increase in fuel prices due to a prolonged conflict could increase inflationary pressures. However, it is expected to remain below the targeted level of 7.5%, according to the finance ministry.
It further said that despite risks to growth prospects emanating from the conflict, Pakistan’s industrial sector, particularly LSM, is performing well and GDP growth is expected to remain on target. The SBP, in its last monetary policy committee meeting, reiterated the range of 3.75%-4.75% for GDP growth in this fiscal year, it added.
