- Selected items to shift to 18% GST slab.
- Measures linked to the completion of the second review of the IMF program.
- Islamabad targets $1.2 billion from EFF and RSF.
ISLAMABAD: Pakistan has committed to the International Monetary Fund (IMF) to increase tax rates on fertilizers, pesticides and sugary products, and to move selected items to the 18% GST standard. The news reported on Friday.
These measures are part of Islamabad’s bid to successfully complete the second review and unlock the third tranche of $1 billion of the $7 billion Expanded Fund Facility (EFF), as well as the first tranche of $200 million of the $1.4 billion Resilience and Sustainability Fund (RSF).
More details of the IMF’s report on Pakistan’s economic performance have been released, and the Fund says Pakistan has achieved most of the lending program’s goals.
In its recently released staff report, the IMF projected that the balance of payments gap will continue to widen from the current fiscal year, reaching $3.253 billion in 2029-2030, once the existing program concludes. This projection indicates that Pakistan may need another IMF program in the near future.
The staff report says contingency measures provide an important safeguard against fiscal risks.
Should revenues fail to meet expectations by the end of December 2025, Pakistani authorities plan to take additional measures to safeguard fiscal targets, including increasing excise taxes on fertilizers and pesticides by five percentage points, introducing excise taxes on high-value sugary items, and broadening the sales tax base by shifting selected items to the standard rate.
They are also willing to reduce or postpone spending in response to lower income.
The government has also assured the Washington-based lender that it will fully deregulate the sugar sector, continue tariff adjustments in the electricity sector and reduce system losses and cut costs. A nationwide rollout of point-of-sale systems for 40,000 large retailers will be completed over the next two years, while the four provinces will move toward harmonized sales tax procedures.
The IMF report notes that during the current fiscal year, Pakistan will restrict spending on new development plans to 10% of the PSDP and will prioritize the completion of around Rs 2.5 trillion in ongoing projects.
Starting next fiscal year, more attention will be paid to climate-related development plans. Public procurement will move to digital e-pads, and the Auditor General will be mandated to submit a compliance report to the president by March 2026.
Under the social protection pillar, the Kafalat cash transfer under the BISP program will increase to Rs 14,500 per quarter starting January 2026, while the number of beneficiaries will expand to 10.2 million families. Biometric verification for payments will remain mandatory and the long-awaited e-wallet system will be launched in June 2026.
Regarding energy reforms, the IMF has noted that the government has already decided to change the annual tariff restructuring from July to January 2026. Last fiscal year, the volume of circular debt was reduced to 1,614 trillion rupees.
By January 2026, the government aims to clear Rs 1.2 trillion owed to commercial banks, of which Rs 660 billion will go to Pakistan Private Holdings Limited and the rest to the Central Power Purchasing Agency.
The plan also includes eliminating Rs 128 billion in interest payments due to IPPs and keeping circular debt at zero inflows until fiscal 2031.
The Fund highlights that 5.2 million income tax returns were filed in fiscal year 2024, while the figure is expected to reach 7 million in fiscal year 2025. It recognizes Pakistan’s progress in stabilization, highlighting improvements in foreign exchange reserves, which have increased to $14.5 billion, and a primary surplus of 1.3% in fiscal year 2025.
Fiscal performance remains strong, with a recorded primary surplus of 1.3%, and the IMF report says this surplus was achieved in line with the program target.
According to the report, in one year, foreign exchange reserves increased from $9.4 billion to $14.5 billion, and reserves are expected to increase further in the coming years.
The IMF says Pakistan has achieved its first current account surplus in 14 years and considers the primary surplus target for fiscal year 2025-26 achievable. Reforms to increase revenues and reduce debt are described as ongoing.
Regarding inflation, the IMF notes that inflation increased due to food prices after the floods, but says this inflationary pressure is temporary. Inflation is expected to decline to 7% in the current fiscal year. The IMF has emphasized maintaining a tight monetary policy to keep inflation under control. He also says that exchange rate flexibility is necessary to absorb shocks.
At the same time, the IMF warns that the 2022 floods highlighted Pakistan’s profound climate vulnerability, affecting seven million people and claiming almost 1,000 lives, while causing extensive losses to infrastructure, homes and livestock.
The report says that after the floods, the importance of policy reforms and continuity has increased even more, and calls for stronger climate adaptation measures, better water management and disaster preparedness.
The global lender has also emphasized sustained reforms in taxes, governance, state-owned enterprises and energy to ensure long-term growth.
It says Pakistan must widen the tax net, simplify tax procedures, ensure data transparency and maintain a tight monetary policy to keep inflation stable. Strengthening foreign exchange market transparency and reducing political uncertainty are also essential.
The IMF report adds that progress has been made in improving the electricity sector through adjustments to energy rates, but more reforms are required to stabilize the sector.
It also notes that it is important to improve governance in state-owned enterprises and the investment environment, and that trade and investment reforms are essential for sustainable growth. It says RSF’s reforms will help improve flood risk management and water governance.
The report concludes that Pakistan’s economic recovery remains fragile but is moving in the right direction with the current programme. It notes that stronger reforms and coherent policy implementation will be critical to reducing debt, raising revenues and sustaining growth in the coming years.
