Pakistan and IMF: Talks Continue Amid Delays in First EFF Review
Staff Report:
The IMF team visited Pakistan from February 24 to March 14, 2025, to discuss the first review of the Extended Fund Facility (EFF) and a potential new arrangement under the Resilience and Sustainability Facility (RSF), also known as climate financing.
According to the IMF statement, significant progress was made in key areas, including fiscal consolidation, monetary policy, energy sector reforms, and structural adjustments. On the RSF front, discussions focused on climate reform agendas, which could be supported under the new facility.New IMF funding for Pakistan|Highlights
However, a staff-level agreement (SLA) has not yet been reached. The IMF explicitly stated, “The IMF and the Pakistani authorities made significant progress toward reaching a Staff Level Agreement (SLA) on the first review under the 37-month Extended Arrangement under the Extended Fund Facility (EFF).” Policy discussions will continue virtually in the coming days to finalize the agreement.
The government has already implemented measures such as increasing the Petroleum Development Levy (PDL) by Rs10 per liter on petrol and diesel and imposing an additional Rs791/mmbtu grid levy on captive power generation. The PDL hike is expected to generate an additional Rs14-15 billion per month. So far, the government has collected Rs728 billion from the levy in the first eight months of FY25, which is 68% of the IMF target of Rs1.066 trillion and 57% of the government’s Rs1.281 trillion goal. Even with no year-over-year sales growth, the IMF’s target is likely to be met. The government’s own target, however, would require a 25% increase in sales over the next four months with PDL remaining at Rs70 per liter.
The IMF has reportedly agreed to revise down Pakistan’s Federal Board of Revenue (FBR) revenue target by Rs620 billion to Rs12.35 trillion. Despite the revision, Pakistan will still meet the 10.6% tax-to-GDP target. The adjustment is due to a downward revision of nominal GDP estimates for FY25, from Rs123 trillion to Rs116.5 trillion, reflecting lower inflation and real GDP growth projections. Currently, the tax shortfall stands at Rs601 billion, and the government plans to bridge any gap beyond Rs620 billion by expediting pending tax-related court cases.
Looking back at Pakistan’s IMF experience, the last EFF program in May 2024 followed a similar pattern. The IMF mission visited from May 13-23 but did not sign the SLA immediately, citing pending virtual policy discussions, including external financing assurances. The SLA was eventually reached on July 12, 2024, with a condition requiring IMF board approval and confirmation of financing assurances from development partners. Board approval came on September 24, 2024, following prior actions such as the FY25 budget, electricity tariff adjustments, and gas price hikes—delaying the process by four months from the end of the mission statement.
In comparison, Bangladesh secured an SLA for its third IMF review on December 18, 2024, without delay. However, three months later, board approval is still pending, likely due to major fiscal adjustments required after tax revenue shortfalls following political unrest. Sri Lanka, on the other hand, secured an SLA on November 23, 2024, but board approval came only on February 28, 2025, after nearly three months. Prior actions included the 2025 budget, VAT and tax law amendments, and lifting import restrictions. Notably, despite meeting all fiscal performance criteria, Sri Lanka’s budget was still a required prior action.
Given these regional precedents, Pakistan’s SLA signing could take a few more weeks, as the government may need to present new budgetary measures for FY26 or bring the budget to parliament early to ensure IMF board approval before June. Even if the SLA is finalized soon…
