The International Monetary Fund’s Executive Board has approved the disbursement of the latest tranche under Pakistan’s 37-month Extended Fund Facility, releasing funds after concluding a review mission that assessed the country’s progress on fiscal, energy and tax reform benchmarks. The approval brings total disbursements under the programme to well over half of its total value since the facility was approved in 2024, and comes at a moment when officials in Islamabad have been keen to project renewed confidence in the country’s macroeconomic trajectory.

In its statement, the Fund said Pakistan had broadly met the quantitative targets set out at the last review, including on primary fiscal balance and net international reserves, while acknowledging that progress on some structural benchmarks, particularly around energy sector circular debt and provincial revenue mobilisation, had been slower than originally envisaged. IMF staff noted that the government had made headway on broadening the tax base, citing measures to bring the retail and real estate sectors more fully into the tax net, but said further effort would be required to reduce reliance on indirect taxation, which continues to place a disproportionate burden on lower income households.

Finance Minister Muhammad Aurangzeb described the board’s approval as a vote of confidence in Pakistan’s reform trajectory, telling a press briefing in Islamabad that the government remained committed to the programme’s objectives even where individual measures, such as further energy tariff adjustments, had proven politically difficult. He said the disbursement would help shore up foreign exchange reserves, which the central bank has been gradually rebuilding after they fell to critically low levels during the 2023 balance of payments crisis.

The review also touched on Pakistan’s climate resilience commitments under a parallel Resilience and Sustainability Facility arrangement, with the Fund noting some progress on disaster risk financing and climate-adaptive budgeting following the severe flooding that has periodically affected parts of Sindh and southern Punjab in recent years. Officials said additional financing under that facility remains contingent on further progress on climate related public investment management reforms.

Independent economists offered a mixed assessment of the review outcome. Some noted that the completion of the review without major deviation from targets reflected genuine improvement in fiscal discipline, pointing to a narrower primary deficit and steadier tax collection trends than in previous years. Others cautioned that headline compliance with IMF benchmarks has periodically been achieved through one-off measures, such as delayed payments or accounting adjustments in the energy sector, and argued that the sustainability of the reforms would only become clear over a longer horizon, particularly as Pakistan approaches politically sensitive decisions on subsidy reform ahead of the next general election cycle.

The Federal Board of Revenue, meanwhile, reported that tax collection for the fiscal year had come in close to its revised target, though officials acknowledged the original budgeted target set at the start of the year had been missed, prompting mid-year adjustments to expenditure and additional taxation measures on select sectors. Business groups have continued to press the government for a broader documentation drive rather than repeated reliance on additional levies on already-compliant sectors such as manufacturing and salaried individuals.

With the latest tranche now approved, attention is turning to the next review cycle, expected later in the year, which officials say will focus heavily on energy sector reform, including further efforts to reduce circular debt and restructure loss-making state power distribution companies.

— Compiled by the Weekly PK Staff Desk