- Selected items to switch to 18% GST slab.
- Measures linked to the completion of the IMF’s 2nd program review.
- Islamabad targets $1.2 billion from EFF and RSF.
ISLAMABAD: Pakistan has committed to the International Monetary Fund (IMF) to raise tax rates on fertilizers, pesticides and sugar-containing products and move selected items to the standard of 18% GST, The news reported Friday.
These steps are part of Islamabad’s attempt to complete the second review and unlock the third $1 billion tranche under the $7 billion Extended Fund Facility (EFF), as well as the first $200 million tranche from the $1.4 billion Resilience and Sustainability Facility (RSF).
Further details of the IMF’s report on Pakistan’s economic performance have been released, and the fund says Pakistan has achieved most of the targets under the loan programme.
In its recently released staff report, the IMF predicted that the balance of payments gap will continue to widen from the current fiscal year and reach $3.253 billion in 2029-30 after the existing program ends. This projection signals that Pakistan may require another IMF program in the near future.
The staff report says contingency measures provide an important safeguard against fiscal risks.
If revenues fall short of expectations by the end of December 2025, the Pakistani authorities plan to adopt additional measures to secure the fiscal targets, including increasing excise duties on fertilizers and pesticides by five percentage points, introducing excise duties on high-value sugary goods and broadening the sales tax base by moving selected goods to the standard rate.
They are also prepared to reduce or postpone spending in response to lower revenues.
The government has also assured the Washington-based lender that it will fully deregulate the sugar sector, continue tariff adjustments in the power sector and reduce system losses and cut costs. A nationwide installation of point-of-sale systems for 40,000 large retailers will be completed over the next two years, while all four provinces will move towards harmonized sales tax procedures.
The IMF report notes that during the current fiscal year, Pakistan will limit spending on new development schemes to 10% of PSDP and will prioritize completion of ongoing projects worth about Rs2.5 trillion.
From the next financial year, greater focus will be placed on climate-related development schemes. Government procurement will switch to digital e-pads, with the Auditor General empowered 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 from January 2026, while the number of beneficiaries will be expanded 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.
On energy reforms, the IMF noted that the government has already decided to move the annual tariff rebasing from July to January 2026. Last fiscal year, the circular debt stock was reduced to Rs 1.614 trillion.
By January 2026, the government aims to settle Rs1.2 trillion owed to commercial banks, of which Rs660 billion will go to Pakistan Private Holdings Limited and the rest to the Central Power Purchasing Agency.
The plan also includes elimination of Rs128 billion in interest payments to IPPs and keeping the circular debt at zero inflow till fiscal 2031.
The foundation highlights that 5.2 million tax returns were filed in FY2024, while the number is expected to reach 7 million in FY2025. Acknowledging Pakistan’s progress in stabilization, it notes improvements in foreign exchange reserves, which have risen to $14.5 billion, and a primary surplus of 1.3% delivered in FY2025.
Fiscal performance remains strong, with the primary surplus recorded at 1.3%, and the IMF report says this surplus was achieved in line with program targets.
According to the report, foreign exchange reserves increased within a year from $9.4 billion to $14.5 billion and the 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 that the primary surplus target for the fiscal year 2025-2026 is achievable. Reforms to increase revenue and reduce debt are described as ongoing.
On inflation, the IMF notes that inflation rose due to food prices following the floods, but says that this inflationary pressure is temporary. Inflation is expected to fall to 7% in the current financial year. The IMF has emphasized maintaining a tight monetary policy to keep inflation under control. It also says exchange rate flexibility is needed to absorb shocks.
At the same time, the IMF warns that the 2022 floods highlighted Pakistan’s deep climate vulnerability, having affected seven million people and claimed nearly 1,000 lives, while causing widespread loss of infrastructure, housing and livestock.
The report says that after the floods, the importance of reforms and policy continuity has increased further, and it calls for stronger climate adaptation measures, improved water management and disaster preparedness.
The global lender has also emphasized ongoing reforms in taxation, governance, state-owned enterprises and energy to ensure long-term growth.
It says Pakistan needs to expand the tax net, simplify tax procedures, ensure data transparency and maintain tight monetary policy to keep inflation stable. Enhancing 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 tariffs, but further reforms are needed to stabilize the sector.
It also notes the importance of improving the governance of state-owned enterprises and the investment environment, and that trade and investment reforms are essential for sustainable growth. It says RSF reforms will help improve flood risk management and water management.
The report concludes that Pakistan’s economic recovery remains fragile but is moving in the right direction under the current programme. Stronger reforms and consistent policy implementation, it notes, will be critical to lowering debt, raising revenues and sustaining growth in the coming years.
