The International Monetary Fund (IMF) is set to kick off virtual discussions regarding Pakistan’s upcoming budget today, Wednesday. This comes after the mission’s visit to Islamabad was postponed due to security issues in the area, as reported by government sources to The Express Tribune on Tuesday.
These virtual talks will occur with a new mission chief recently appointed to Pakistan. Sources indicate that the IMF mission had to delay its planned arrival in Islamabad on Tuesday because of the uncertainty stemming from Indian aggression, which has impacted air travel in the region.
However, the sources also mentioned that the mission is now anticipated to arrive in Islamabad over the weekend, depending on the security situation. They assured that this adjustment wouldn’t negatively impact the work or the original program schedule.
The discussions are scheduled to start today, May 14, and will run until May 16. “We expect virtual discussions to take place. For the second and final phase of the talks, the IMF team is likely to arrive in Islamabad on Saturday and remain until May 23,” the source noted.
Mahir Binici, the IMF’s Resident Representative to Pakistan, did not reply to a request for comments regarding the change in travel plans. Similarly, Finance Ministry Spokesperson Qumar Abbasi also did not respond to inquiries about the alterations in the travel schedule.
The discussions are kicking off today, May 14, and will run through May 16. According to a source, “Virtual discussions are on the agenda. For the second and final phase of the talks, the IMF team is expected to touch down in Islamabad on Saturday and remain until May 23.”
Mahir Binici, the IMF’s Resident Representative to Pakistan, hasn’t replied to inquiries about the changes in the travel schedule. Similarly, Finance Ministry Spokesperson Qumar Abbasi has also stayed silent on the matter.
In other news, the IMF has appointed Iva Petrova, a staff member from Bulgaria, as the new Mission Chief to Pakistan. She’ll be joining the talks alongside the outgoing Mission Chief, Nathan Porter, who has held the position for quite some time.
Porter was recognized for his strong views on policy matters but preferred to keep a low profile when it came to public engagements. He also maintained strict control over the Finance Ministry’s media strategy. Mahir has not indicated whether both the outgoing and incoming mission chiefs will participate in both rounds of discussions.
Petrova, who earned her PhD in economics from Michigan State University, has been serving as the IMF Mission Chief to Armenia. Before that, she worked with missions in Israel, Iceland, and Latvia.
Looking ahead, the Pakistani government is gearing up to present the budget for the fiscal year 2025-26 on June 2, just before the Eidul Azha holidays. This will mark Finance Minister Muhammad Aurangzeb’s second budget speech, which will need to align with the guidelines set by the IMF during these discussions.
The fiscal policy is set to stay tight in the upcoming fiscal year as well. The IMF has urged Pakistan to prepare a budget based on the expectation of achieving a primary budget surplus of 1.6% of GDP, which means they’ll need to generate around Rs2 trillion beyond their non-interest expenses.
The Federal Board of Revenue (FBR) has set a tax target of 11% of the GDP, which amounts to about Rs14.3 trillion. According to sources, the IMF will be looking into whether the government is ready to implement realistic measures to support this new tax goal.
The federal budget size is still up in the air as the government reassesses defense needs, with plans to announce a budget of less than Rs18 trillion. They also mentioned that after factoring in significant provincial cash surpluses, the overall budget deficit target is expected to be around 5.1% of the GDP, or Rs6.7 trillion.
According to various sources, on the first day of discussions, the Finance Ministry is set to update the IMF mission on the fiscal developments that took place during the July-March period of the current fiscal year. They will also provide details about the supplementary grants that were approved throughout the year.
The IMF has laid out several fiscal conditions, and meeting these has been crucial for keeping the program on track, even after some initial hurdles. Pakistan has successfully achieved the IMF targets for a primary budget surplus set by the federal government, along with net revenue collection and cash surplus goals established by the four provinces.
For a primary surplus target of Rs2.7 trillion, the federal government reported an impressive surplus of Rs3.5 trillion, which is about 2.8% of GDP. This higher surplus mainly stems from fully accounting for the annual profit of the central bank in the first quarter, with the entire estimated profit of Rs2.5 trillion already included.
The four provinces together generated a cash surplus of Rs1.028 trillion in the first nine months, surpassing the IMF target by Rs25 billion. Additionally, they brought in Rs685 billion in tax revenues, exceeding the IMF target by Rs79 billion. However, against a nine-month revenue target of over Rs9.2 trillion, the FBR managed to collect Rs8.5 trillion, which means they fell short by Rs715 billion.
The IMF has requested that the government provide an update on any savings resulting from the planned downsizing. During the first day of discussions, they’ll also delve into the non-tax targets for the upcoming fiscal year, particularly focusing on the potential for petroleum levy collections and the profits from the central bank.
The FBR is set to report on tax performance in April and the outlook for the rest of the fiscal year. Alarmingly, the tax shortfall has surged to an eye-watering Rs830 billion in the first ten months, even with the government implementing record-high additional taxes and cutting back on refunds.
In just April alone, the government added about Rs135 billion to the tax shortfall, breaking its promise to the IMF that the shortfall would not exceed Rs640 billion against the original annual target.By the end of April, the FBR has provisionally collected Rs9.3 trillion in taxes. While this figure is approximately 27% or Rs1.95 trillion more than last year’s collection, it still falls short of what’s needed to stay on course.
Sources indicate that on the first day, discussions will also cover enforcement measures related to track and trace, the retailers scheme, and compliance risk management. Unfortunately, the FBR has struggled significantly in these areas, with its collection largely reliant on additional tax measures.
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Q1: What are the current fiscal discussions about?
Pakistan has initiated virtual consultations with a global financial institution to align its upcoming financial framework with agreed economic reform objectives. The focus is on setting surplus targets, revenue benchmarks, and expenditure controls.
Q2: Why are the consultations being held online?
Security concerns in the region, particularly due to rising tensions, have led to the postponement of the in-person visit. As a result, the first phase of fiscal planning sessions is being conducted virtually from May 14 to May 16.
Q3: Who is leading the policy dialogue from the lender’s side?
Iva Petrova, the newly appointed mission head from the global lending agency, is heading the talks, alongside outgoing official Nathan Porter.
Q4: What is the international creditor expecting from Pakistan?
The creditor expects Pakistan to target a 1.6% primary fiscal surplus, enhance tax compliance, and adopt sustainable revenue strategies while limiting non-essential spending.
Q5: Will the delayed in-person meetings affect the financial planning process?
Officials have confirmed that the change in schedule will not disrupt the overall timeline or outcomes of the current policy consultations.
Q6: When will Pakistan present its annual financial blueprint?
The federal government plans to unveil its financial framework for 2025–26 on June 2, just before the Eidul Azha holidays, aligning with the outcomes of the ongoing consultations.
