Minister for Finance Mohammad Aurangzeb has initiated discussions with the International Monetary Fund (IMF), which is urging Pakistan to enhance its revenue collection.

The publication reported that the IMF is suggesting two options — either unveil a mini-budget to meet the revenue shortfall of Rs189 billion or come up with a viable plan to reduce the unbridled expenditures.

Finance Secretary Imdad Ullah Bosal and Federal Bureau of Revenue (FBR) Chairman Rashid Mehmood Langrial started the first session with the visiting IMF team scheduled to stay in Islamabad from November 11 to 15.

It remains to be seen how the IMF responds but satisfying the IMF over its concerns seems to be a difficult undertaking.

The finance minister has informed the IMF that the country’s tax machinery collected Rs11 billion from retailers, wholesalers, and distributors in the first quarter of the current fiscal year.

However, the much-hyped Tajir Dost Scheme (TDS) has miserably failed to get the desired results as the tax collected through this scheme stands at just Rs1.7 million by the latest available figures against the agreed target of Rs10 billion for the first quarter.

A top official said the TDS was just an instrument to bring retailers and wholesalers into the tax net but its objective has been achieved as the FBR managed to collect an additional Rs11 billion from them in the first quarter through the normal taxation regime.

Under sections 236G and 236H of the Income Tax law, the FBR hiked the tax rates for selling products to non-filers by almost 10 times so keeping in view stringent actions and fear factors the retailers and wholesalers preferred to come into the tax net and deposited additional tax of Rs11 billion till September 30, 2024.

The number of return filers has also gone up substantially so the process of documentation of economy has gained momentum in the country.

Under section 236G related to advance tax on sales to distributors, dealers and wholesalers, every manufacturer or commercial importer at the time of sale to distributors, dealers, and wholesalers, shall collect advance tax at the rate specified in Division XIV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made.

This rate is fixed at 2% on the gross amount of sale to distributors, dealers or wholesalers other than the sale of fertiliser.

Credit for tax collected under sub-section (1) shall be allowed in computing the tax due by the distributor, dealer, or wholesaler on the taxable income for the tax year in which the tax was collected.

Under section 236H related to advance tax on sales to retailers, every manufacturer, distributor, dealer, wholesaler or commercial importer at the time of sale to retailers, and every distributor or dealer to another wholesaler in respect of the said sectors”, shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made.

This rate is fixed at 2.5% on the gross amount of sales to retailers. Credit for the tax collected under sub-section (1) shall be allowed in computing the tax due by the retailer on the taxable income for the tax year in which the tax was collected.

The Power Division high-ups briefed the IMF on the imposition of increased fixed rates for on-grid solar energy which will lead to curtailing of solarisation. The power division seeks the IMF’s green light on this proposal.

The Fund’s Staff Mission is in the country for meetings to suggest midway course correction to avoid deviations from the fiscal and external framework envisaged for the current fiscal year.

The IMF preferred to visit Islamabad earlier than conducting the first review under the $7 billion Extended Fund Facility mainly because of fiscal slippages in the first four months.

There were apprehensions that if the course correction was not done immediately, then the fiscal hole might widen further and touch irreparable levels by Feb-March 2025.

The IMF might not rely on cutting down expenditure heads which will have limited space so the more viable option might be the unveiling of a mini-budget for jacking up the tax to GDP ratio up to the desired level, said the official.

The International Monetary Fund (IMF) has identified corruption, bureaucratic red tape, and a weak business environment as the primary challenges hindering Pakistan’s development.

In response, the government has assured the IMF of taking firm steps to address these issues, including greater transparency and accountability in the public sector. The government has also assured the IMF of curbing corruption and abuse of power.

According to a recent report presented to the global lender, the government plans to disclose the assets of senior bureaucrats to combat corruption. Much like politicians, public officials in grades 17 to 22 will now be required to reveal their domestic and foreign assets, including those held by their families.

This change, to be implemented through amendments to the Civil Service Act, is expected to be completed by February 2025. Once these amendments are made, the Federal Board of Revenue (FBR) will digitize the asset declaration system.

The government has also committed to strengthening the National Accountability Bureau (NAB) to ensure more effective oversight and investigation of corruption cases. Public officials will be held accountable and prevented from building illegitimate assets, the IMF has been assured.

Following the Supreme Court’s decision to grant NAB greater independence, the government has vowed to improve its investigative capabilities and address political accusations that often hinder the conviction of corrupt officials. It has also committed to tackle the lack of convictions on corruption, political accusations and weak investigative capabilities.

The IMF welcomed these commitments, emphasizing that strong governance and robust anti-corruption institutions are critical to Pakistan’s economic reforms and development. However, the Fund also warned that vested interests had great influence in government affairs and could impede or even reverse these reforms.

To further ensure transparency, Pakistan has pledged to publish an actionable anti-corruption plan by July 2025. The country also plans to release a comprehensive report on the implementation of the United Nations Anti-Corruption Convention as part of its broader commitment to global standards.

The government has sought the IMF’s assistance in governance and corruption assessments as it pushes forward with its reform agenda.

Meanwhile, the IMF has revealed that Pakistan will need a staggering $110 billion in external financing over the next five years. According to details, this urgent need came on the heels of Pakistan’s successful management of $18.81 billion in external financing for the current year.

The IMF’s report has outlined that the ability to meet debt repayment obligations hinges on effective policy implementation and timely external funding.

Notably, the assurances had been secured for the rollover of $16.8 billion in loans this year from countries such as China and Saudi Arabia, along with additional funding of $2.5billion from the Asian Development Bank and the Islamic Development Bank.

Looking ahead, Pakistan is expected to roll over $6.6billion in loans owed to international commercial banks over the next three years, with an estimated $14billion likely to come from global financial institutions by 2028.

Pakistan’s foreign exchange reserves have surged to cover two months’ worth of imports after the arrival of the first tranche from the International Monetary Fund’s (IMF) 37-month loan deal under the $7 billion Extended Fund Facility (EFF), Governor State Bank of Pakistan (SBP) Jameel Ahmed said on Wednesday.

In much-needed support for the country’s fiscally-challenged economy, the State Bank of Pakistan (SBP) received the first tranche of $1.03 billion (SDR 760 million) on Monday, September 30, 2024.

Pakistan had been working on implementing conditions deemed “strict” to complete the loan programme agreed to in July, which Prime Minister Shehbaz Sharif time and again hoped would be Pakistan’s last.

The liquid reserves now stand at $10 billion, providing much-needed stability to the country’s foreign exchange position.

“The foreign exchange reserves have stabilised, and we expect further improvements,” Ahmed said speaking at a banking conference.

He highlighted that the recent IMF disbursement has eased pressure on the rupee, ensuring a smooth supply of dollars in the market.

“[Overseas workers’] remittances have increased, and the supply of dollars has improved,” said Ahmed, noting that a decline in inflation has positively impacted monetary policy.

The governor expressed satisfaction over the government’s fiscal situation, which he said had also improved.

“The rate of borrowing from banks has decreased,” he further stated.

Dispelling the impression of a holdup in repayments to commercial banks, Ahmad said the government was not short of funds. “We are making early repayments of bank loans,” the governor said.

Ahmed also briefly outlined the central bank’s strategy to modernise Pakistan’s banking sector, underlining that promoting innovation in banking could spur economic growth.

“We aim to launch fully digital banking by 2025,” he said, noting that the initiative will enhance financial inclusion and accessibility for millions of Pakistanis.

The SBP governor further revealed plans to expand Small and Medium Enterprises (SMEs) financing, with a target to increase the current volume from Rs550 billion to Rs1.1 trillion over the next five years.

This will support small and medium-sized enterprises, key drivers of economic activity in the country.

As the popularity of digital banking continues to grow in Pakistan, Ahmed acknowledged the rising risks of online fraud.

“Banks have been warned to strengthen their cybersecurity measures,” he said, stressing the importance of safeguarding the growing number of users, which currently stands at 12 million for mobile banking and was increasing at an annual growth rate of 70%.

The central bank governor pointed out that branchless banking was already serving 59 million customers, while the use of mobile and internet banking continues to surge, with internet banking growing at 30% annually.

The governor also highlighted the phenomenal success of Raast, Pakistan’s digital payments platform, which has so far processed transactions worth Rs19 trillion since its launch in 2021.

“Daily transactions on Raast now exceed 2.5 million, and the system is being linked with Middle Eastern software to facilitate low-cost remittances for overseas Pakistanis,” Ahmad noted, adding, “This will make it easier and cheaper for expatriates to send money back home.”

Citing the SBP’s ongoing push towards a more modern, digital-driven banking environment, Governor Ahmed said that innovation was the future of banking and a key factor in Pakistan’s economic development.

The International Monetary Fund (IMF) has projected an improvement in Pakistan’s economic outlook following the approval of a $7 billion loan package.

In its latest report, the IMF predicted an acceleration in economic growth, a reduction in inflation, and a decrease in unemployment. However, the Fund emphasized that despite these improvements, Pakistan’s economy faces significant challenges that require comprehensive reforms.

According to the IMF, Pakistan’s economic growth rate is expected to rise to 3.2% in the current fiscal year, compared to 2.4% in the previous year. The report also forecasts a sharp decline in inflation, with the average rate projected to fall from 23.4% to 9.5%. Unemployment is expected to decrease from 8% to 7.5%.

Despite these optimistic predictions, the IMF noted that Pakistan’s budget deficit remains a concern. The deficit could reduce to 6.1% of GDP from last year’s 6.8%. However, government debt, including loans from the IMF, is projected to rise, with debt-to-GDP increasing from 69.2% to 71.4%.

Crude foreign exchange reserves are expected to improve, reaching $12.75 billion by the end of the fiscal year, providing some relief to Pakistan’s external sector. The IMF emphasized the need for continued reforms in the energy sector and fiscal management to ensure sustained economic growth.

In a statement following the IMF Executive Board meeting, Deputy Managing Director and Acting President Kenji Okamura highlighted several areas where Pakistan needs to focus. He stressed the importance of expanding the tax base to increase revenue, particularly targeting industrialists, developers, and large landowners who currently enjoy low-tax burdens.

He also called for an end to special sector exemptions and the inclusion of all sectors, including agriculture, under the tax net. He stressed that foreign exchange reserves should continue to rise.

Okamura also underscored the importance of improving governance, strengthening anti-corruption institutions, and ensuring effective public investment management. “Energy sector reforms must continue. Sustained economic growth requires continuous efforts and reforms,” he noted.

The report noted that last year’s policies played a crucial role in stabilizing the economy, restoring growth, and easing external pressures, but warned that continuous efforts are needed to maintain progress. Those policies also helped reduce short-term risks and restore confidence.

Last year, he noted, the foreign exchange reserves increased and inflation recorded a significant decrease. “Federal and provincial administrative arrangements need to be strengthened, and the tax system improved,” the official suggested.

Reforms in the energy sector, particularly timely adjustments in tariffs, were recognized for helping to stabilize Pakistan’s circular debt. The IMF suggested that a reduction in inflation could also lead to a decrease in the policy rate, and urged the State Bank of Pakistan to maintain a tight monetary policy to ensure financial stability.

In conclusion, the IMF official reiterated that sustained economic growth will require prudent spending, enhanced revenue collection, and reforms in government institutions. This, he said, would create the necessary resources for investment in human capital, infrastructure, and social programs, all of which are critical for Pakistan’s long-term economic stability and prosperity.

State Bank of Pakistan (SBP) on Friday received the first tranche of SDR 760 million (equivalent to $1.0269 billion) from the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility (EFF).

The IMF Executive Board approved a 37-month programme on Wednesday.

These inflows will be reflected in SBP liquid reserves to be released on Thursday, September 30, 2024, the central bank said in a statement.

Following the long-awaited approval, the IMF said the new programme would require “sound policies and reforms” to strengthen macroeconomic stability and address structural challenges alongside “continued strong financial support from Pakistan’s development and bilateral partners”.

Pakistan had been working on implementing conditions deemed “strict” to complete the loan programme agreed to in July, which Prime Minister Shehbaz Sharif time and again hoped would be Pakistan’s last.

Though, the country’s economy has stabilised since it came close to defaulting last summer, it is dependent on IMF bailouts and loans from friendly countries to service its huge debt, which swallows up half of its annual revenues.

“There will be transitional pain, but if we are to make it the last programme, then we have to carry out structural reforms,” Finance Minister Muhammad Aurangzeb said.

The IMF said in a statement it would issue an “immediate disbursement” of around $1 billion.

“This past year has seen a very welcome return to economic stability in Pakistan,” IMF Pakistan mission chief Nathan Porter told reporters on Thursday.

“The challenge confronting Pakistan now is to move beyond this renewed sense of stability and towards stronger and sustained growth, with its benefits shared more broadly and evenly across society,” he added.

Speaking on the sidelines of the United Nations General Assembly in New York on Wednesday, Prime Minister Shehbaz Sharif said the deal came through thanks to the “tremendous support” of Saudi Arabia, China and the United Arab Emirates.

“In the final phase (of negotiations), the IMF’s conditions were related to China. The way the Chinese government supported and strengthened us during this time is something I am truly grateful for,” he told reporters shortly before the deal was announced.

Last month, Aurangzeb had said Pakistan was negotiating a $12 billion loan reprofiling from bilateral lenders.

The amount comprised $5 billion from Saudi Arabia, $4 billion from China and $3 billion from the UAE for a three- to five-year period.

Porter said all three countries had “provided significant financing assurances,” beyond these commitments to rolling over the $12 billion in existing loans.

‘Formidable’ vulnerabilities

Kaiser Bengali, a Pakistani economist, said the deal “will help us pay back our immediate debts, but nothing more.”

“The only economic reforms that we are required to implement is more taxes. There is no progress on reducing government expenditures,” he told AFP.

At the end of 2023, Pakistan — long locked in a cycle of overlapping political and economic crises — had amassed a total debt of more than $250 billion, or 74% of GDP, according to the IMF.

About 40% of its debt is owed to external creditors in foreign currencies. Its biggest single foreign creditor is China and Chinese commercial banks, at just under $30 billion, followed by the World Bank at more than $20 billion, according to the report.

Last year the country came to the brink of default as the economy shrivelled amid political chaos following catastrophic 2022 monsoon floods and decades of mismanagement, as well as a global economic downturn.

It was saved by last-minute loans from friendly countries as well as an IMF rescue package.

Islamabad wrangled for months with IMF officials to unlock the latest loan, which came on the condition of reforms including hiking household bills to remedy a permanently crisis-stricken energy sector and raising pitiful tax takings.

In a nation of more than 240 million people where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022.

The IMF said Pakistan “has taken key steps to restoring economic stability with consistent reforms”. But “despite this progress, Pakistan’s vulnerabilities and structural challenges remain formidable”, it warned.

“A difficult business environment, weak governance, and an outsized role of the state hinder investment, which remains very low compared to peers,” it added.

The International Monetary Fund’s (IMF) Executive Board on Wednesday approved a $7 billion Extended Fund Facility (EFF) for Pakistan, which Prime Minister Shehbaz Sharif hopes would be the country’s last.

Pakistan and the IMF reached an agreement on the 37-month loan programme in July this year.

The breakthrough was achieved in the aftermath of getting confirmation of $12 billion bilateral loans from Saudi Arabia, China and the UAE.

According to insiders, Pakistan owes $5 billion to Saudi Arabia in the form of cash deposits. It must be noted that Pakistan also holds $4 billion in deposits from China and $3 billion from the UAE.

Pakistan was required to secure external financing of $2 billion from bilateral and commercial lenders as a pre-requisite for the IMF board’s approval.

Later, the global lender identified external financing gap of $2 to $2.5 billion and confirmation was secured from the kingdom in the shape of Saudi oil facility as well as ITFC facility of $400 million from IsDB and remaining from Standard Chartered Bank and other Middle East-based commercial banks, as per The News report.

Islamabad has relied heavily on IMF programmes for years, at times nearing the brink of sovereign default and having to turn to countries such as the United Arab Emirates and Saudi Arabia to provide it with financing to meet external financing targets set by the IMF.

The Executive Board of the International Monetary Fund (IMF) will convene today in Washington to approve a critical $7 billion loan package for Pakistan, aiming to stabilize the country’s fragile economy.

This new bailout program, spanning 37 months, marks Pakistan’s 24th IMF assistance package. With its approval, Pakistan will also be eligible to receive funds from other international organizations and countries.

The expected approval of the loan follows a staff-level agreement reached between Pakistan and the IMF on July 12. Pakistani officials have confirmed that all preconditions for the loan, including securing $2 billion in additional financing and consolidating $12.7 billion in debt, have been fulfilled.

China, Saudi Arabia, the UAE, and Kuwait have also provided crucial support by deferring Pakistan’s loan payments for one year.

As part of the IMF’s preconditions, Pakistan has borrowed from international commercial banks at an interest rate of 11%, one of the highest rates in the country’s history.

Finance Ministry officials revealed that Pakistan has to repay $100 billion in debt over the next four years. Additionally, loans from friendly countries will need to be rolled over annually, while additional external financing of $5 billion is projected to be required within the next three years.

To meet the stringent demands of the IMF program, Pakistan will need to gradually raise its tax-to-GDP ratio by 3% over the same period. Sectors such as retail, wholesale, exports, and agriculture are expected to be brought under the tax net, as the government looks to increase revenues.

Furthermore, the officials said reforms in administrative structures, including tax, energy sector and governance, must be continued for the IMF package. Provincial governments have expressed their support for the loan program, with a shared focus on steering the country’s macroeconomic stability towards sustainable development.

Finance Ministry officials emphasized that the loan package will not only provide vital funds but will also unlock additional financial assistance from other international organizations and countries. This assistance is expected to help Pakistan mitigate the ongoing economic crisis and implement necessary reforms for long-term stability.

Last week, the National Assembly’s Standing Committee on Finance was told that the country requires $100 billion in external financing over the next four years. In addition, an extra $12 billion will be needed in the next three years to address ongoing economic challenges.

The International Monetary Fund (IMF) is expected to provide $7 billion, while another $5 billion will be sourced from commercial banks and various other financial institutions. Furthermore, the country will need to roll over loans from key allies, including China, Saudi Arabia, and the UAE in the coming years.

The committee was told that in the last five years, there was an average annual increase of 14% in loans taken. Despite receiving the proposed new bailout package of $7 billion from the IMF, Pakistan’s external financial woes will not ease.