IMF Reaches Loan Deal With Pakistan but Sets Rs322bn Tax Collection Condition
By Shahzad Paracha :
The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan for the release of a new loan tranche worth about $1.2bn, but the approval will depend on the government’s ability to collect Rs322bn in taxes linked to court rulings.
The Washington-based lender said the condition must be fulfilled before its executive board can meet to formally approve the disbursement.
Pakistani officials said the requirement has been set as a “prior action” after the IMF found the Federal Board of Revenue (FBR) had fallen short of its revenue targets.
Court rulings tied to tax recovery
Under the agreement, the FBR must collect additional tax revenue arising from court decisions issued up to the end of February in previously disputed cases.
Officials said Pakistan and the IMF have agreed that around Rs322bn could be recovered through these rulings, mainly involving cases related to the super tax. The tax authority is seeking not only the principal amounts but also late payment surcharges of up to 25%.
The government says most of the disputed taxes have already been collected and is confident the remaining amount will be secured before the IMF board considers the next tranche, expected in early May.
If approved, Pakistan would receive roughly $1bn under the Extended Fund Facility (EFF) and about $210m under the Resilience and Sustainability Facility (RSF), bringing total disbursements under both programmes to approximately $4.5bn.
Revenue shortfall concerns
The IMF’s condition comes as Pakistan struggles to meet its tax targets. The FBR has missed its revenue goal for the first eight months of the current financial year by Rs640bn.
Officials attribute the shortfall mainly to weaker-than-expected collections from the power, oil and gas sectors.
According to the tax authority, part of the gap has been offset by higher petroleum levy revenues, provincial cash surpluses, lower flood-response spending and repayments from state-owned enterprises linked to the power sector’s circular debt settlement.
Government launches tax litigation reforms
Amid growing tax disputes, Prime Minister Shehbaz Sharif has formed a task force aimed at strengthening the FBR’s legal framework and improving the handling of tax litigation.
The group will review the tax authority’s legal operations across multiple forums, including internal adjudication bodies, appellate tribunals, high courts and the Supreme Court.
Chaired by Shad Mohammad, the task force also includes senior constitutional and tax lawyer Hafiz Ahsaan Ahmad Khokhar.
Its mandate includes evaluating workload management, institutional capacity and procedural bottlenecks that contribute to prolonged legal disputes over taxes and customs duties.
A key focus will be the Litigation Management System (LMS), which officials say has faced difficulties integrating with appellate tribunals and superior courts.
Middle East conflict adds economic risks
The IMF warned that the ongoing conflict in the Middle East could pose risks to Pakistan’s economic outlook.
In its assessment, the Fund said volatile energy prices and tighter global financial conditions could increase inflationary pressure and slow economic growth.
Pakistan’s Finance Ministry, however, expects only a limited impact. Officials forecast inflation may rise by just 0.3 percentage points while remaining within the target range, with economic growth projected at around 4% and the current account deficit contained within $2bn.
No easing of fiscal targets
Despite these risks, the IMF has maintained Pakistan’s fiscal targets, including a primary budget surplus of 1.6% of GDP.
IMF mission chief Iva Petrova said the government remained committed to maintaining macroeconomic stability while continuing structural reforms aimed at boosting growth and strengthening social protection.
The Fund also expects Pakistan to broaden its tax base, control spending and reduce public debt over the medium term.
Authorities are also exploring ways to share fiscal pressures between federal and provincial governments, including discussions on provinces contributing to the cost of fuel subsidies, which had reached Rs125bn by early April.
Monetary policy and reforms
The IMF said the State Bank of Pakistan should be prepared to raise interest rates if inflation exceeds the target range of 7.5%, particularly if global food or energy prices increase.
It also emphasised that exchange rate flexibility should remain the primary mechanism for absorbing external shocks, including those linked to the Middle East conflict.
The Fund reiterated the need for reforms in the energy sector to prevent the re-emergence of circular debt and stressed that electricity tariffs must be adjusted regularly to ensure cost recovery.
In addition, the IMF highlighted the importance of restructuring state-owned enterprises and advancing the government’s privatisation agenda as part of efforts to reduce the state’s role in the economy and improve efficiency.
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