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Home Economy

$7 Billion IMF Deal Pending After Draft Sent to Pakistan

by Daniyal
March 18, 2025
in Economy, Pakistan Politics, Politics
Reading Time: 3 mins read
0
$7 Billion IMF Deal Pending After Draft Sent to Pakistan

$7 Billion IMF Deal Pending After Draft Sent to Pakistan

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While a staff-level agreement under the $7 billion EFF is still pending, the IMF shares the MEFP draft with Pakistan

An important step in the continuing negotiations under the $7 billion Extended Fund Facility (EFF) has been taken with the sharing of the Memorandum of Economic and Financial Policies (MEFP) draft with Pakistani authorities by the International Monetary Fund (IMF). The goal of this draft is to get an agreement on important fiscal and economic changes that, when completed will open the door for a Staff Level Agreement (SLA) which is necessary before the IMF’s Executive Board can release the next $1 billion tranche.

The Staff-Level Agreement is still pending

No official SLA has been reached despite the progress made during the IMF mission, which ended on Friday. The IMF and Pakistan’s economic team are still negotiating, and in the days ahead follow up talks are anticipated to take place digitally. In order to unlock the remaining monies under the existing EFF the government must agree on the MEFP which specifies its commitments to structural changes, income generation and fiscal consolidation.

When Will Construction and Real Estate See Relief?

According to reports the IMF has demonstrated some flexibility in offering relief measures for Pakistan’s faltering real estate and construction industries. It is unclear, if these incentives would be implemented right away or if they will be part of the government budget for FY2025–2026. The uncertainty highlights the fine line Pakistan must walk between promoting growth and upholding the fiscal restraint imposed by the IMF.

More Stringent Guidelines in the Draft MEFP

A major daily reported that the draft MEFP has a number of strict requirements designed to achieve a long term primary fiscal surplus. The Federal Board of Revenue’s (FBR) yearly tax target has been revised downward from the initial estimate of Rs. 12.97 trillion to Rs. 12.33 trillion which is one of the key provisions. In order to achieve the IMF’s goal of a primary surplus of Rs. 2.4 trillion for the current fiscal year which ends in June 2025, this revision is made in conjunction with spending reductions.

The Debate Over Cross Subsidies

Pakistan’s suggested cross-subsidy system for collecting the full petroleum charge of Rs 70 per liter was a major area of contention during the discussions. The government intended to lessen the burden on customers by using the extra money to offset electricity rates. But the IMF raised questions about how sustainable this strategy would be especially if global oil prices increased. If the government is reluctant to pass on future price increases to consumers there is concern that this subsidy model may exacerbate the circular debt issue.

The IMF’s worries have been echoed by independent economists, who contend that the cross-subsidy approach has historically performed poorly and could introduce new fiscal risks.

Poor Enforcement and Revenue Deficits

The enforcement of several tax measures, namely the hike in Federal Excise Duty (FED) on acetate tow, a crucial raw material used in the manufacturing of cigarettes, was another matter that the IMF brought up. In order to raise Rs 125 billion the government increased the levy to a record Rs. 44,000 per kilogram in the FY2024–25 budget. In reality, the approach has backfired, leading to widespread under invoicing and cross-border smuggling from Afghanistan and Iran.

To stop these activities and increase the effectiveness of collection the IMF has requested that the FBR put in place stronger anti-smuggling measures.

In conclusion

Although the dissemination of the MEFP draft is a positive step there are still many difficult financial obstacles and policy discussions in the way of a Staff Level Agreement. The upcoming weeks will be crucial for Pakistan’s economic destiny since important tax initiatives are being scrutinized and the IMF is calling for tighter enforcement and spending control. The outcome of these online follow-up talks might impact the nation’s overall financial and developmental trajectory in addition to determining when the next IMF tranche is released.

Tags: Climate FinancingCross SubsidyEconomic ReformsFBR Tax TargetFiscal DeficitIMFIMF EFF ProgramMEFPPakistan budget 2025pakistan economyPakistan IMF talkspetroleum levyRevenue ShortfallStaff Level Agreement
Daniyal

Daniyal

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