- Selected items to move to 18% GST band.
- Measures linked to the completion of the 2nd 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 bring certain items up to the standard GST level of 18%, News reported Friday.
These steps are part of Islamabad’s attempt to complete the second review and release the third tranche of $1 billion under the $7 billion Expanded Financing Facility (EFF), as well as the first tranche of $200 million of the $1.4 billion Resilience and Sustainability Facility (RSF).
Further details of the IMF report on Pakistan’s economic performance have been released, with the Fund saying Pakistan has achieved most of the loan program’s objectives.
In its recently released report, the IMF projects that the balance of payments gap will continue to widen from the current fiscal year, reaching $3.253 billion by 2029-30, once the existing program ends. This projection indicates that Pakistan may need another IMF program in the near future.
The IMF staff report notes that emergency measures are an important hedge against fiscal risks.
If revenues are expected to fall short of expectations by the end of December 2025, Pakistani authorities plan to adopt additional measures to preserve fiscal targets, including increasing excise taxes on fertilizers and pesticides by five percentage points, introducing excise taxes on high-value sweet products, and broadening the sales tax base by raising some products to the standard rate.
They are also willing to reduce or postpone spending in response to lower revenues.
The government also assured the Washington-based lender that it would completely deregulate the sugar sector, continue tariff adjustments in the electricity sector, reduce system losses and reduce costs. Nationwide installation of point-of-sale systems for 40,000 large retailers will be completed over the next two years as all four provinces move toward harmonized sales tax procedures.
The IMF report notes that in the current fiscal year, Pakistan will limit spending on new development projects to 10 percent of the PSDP and prioritize the completion of around Rs 2.5 trillion of ongoing projects.
From the next financial year, there will be more emphasis on climate-related development projects. Public procurement will move to digital electronic tablets, with the Auditor General 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 Rs14,500 per quarter from January 2026, while the number of beneficiaries will be expanded to 10.2 million families. Biometric verification of payments will remain mandatory and the long-awaited e-wallet system will be launched by June 2026.
On energy reforms, the IMF noted that the government has already decided to shift the annual rebasing of tariffs from July to January 2026. During the last financial year, the stock of circular debt was reduced to Rs 1,614 billion.
By January 2026, the government aims to settle the 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 maintaining circular debt at zero entry level until FY2031.
The Fund highlights that 5.2 million tax returns were filed in FY2024, while the number is expected to reach 7 million in FY2025. It recognizes Pakistan’s progress in stabilization, noting the improvement in foreign exchange reserves, which reached $14.5 billion, and a primary surplus of 1.3% recorded in FY2025.
Fiscal performance remains strong, with a primary surplus recorded at 1.3%, and the IMF report indicates that this surplus was achieved in line with the program objective.
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 achieved its first current account surplus in 14 years and considers the primary surplus target for the 2025-2026 financial year achievable. Reforms to raise revenues and reduce debt are described as underway.
Regarding inflation, the IMF notes that inflation has increased due to food prices following the floods but asserts that 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 exchange rate flexibility is necessary to absorb shocks.
At the same time, the IMF warns that the 2022 floods have exposed Pakistan’s deep climate vulnerability, having affected seven million people and costing nearly 1,000 lives, while causing significant losses of infrastructure, homes and livestock.
The report says that following the floods, the importance of reforms and policy continuity has further increased, and it calls for stronger climate adaptation measures, better water management and disaster preparedness.
The global lender has also focused on sustainable reforms in taxation, governance, state-owned enterprises and energy to ensure long-term growth.
He says Pakistan needs to widen the tax net, simplify tax procedures, ensure data transparency and maintain a tight monetary policy to keep inflation stable. It is also essential to strengthen the transparency of the foreign exchange market and reduce political uncertainty.
The IMF report adds that progress has been made in improving the electricity sector through adjustments in energy tariffs, but that additional reforms are needed 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. He says RSF 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 under the current program. Stronger reforms and consistent policy implementation, he notes, will be key to reducing debt, raising revenue and supporting growth in the years to come.
