Pakistan has committed to raising taxes on fertilisers, pesticides, and selected sugary products, moving some items to the standard 18 percent GST slab, as part of its effort to unlock IMF funding and strengthen fiscal stability. These steps are designed to secure the second review and release the third $1 billion tranche under the $7 billion Extended Fund Facility, as well as the first $200 million tranche from the $1.4 billion Resilience and Sustainability Facility.
The IMF’s recently released staff report acknowledged that Pakistan has achieved most targets under the programme, while warning that the balance of payments gap could widen to $3.253 billion by 2029–30 after the current arrangement concludes. To mitigate fiscal risks, authorities have committed to contingency measures, including increasing excise duties on fertilisers and pesticides by five percentage points, introducing levies on high-value sugary items, and broadening the sales tax base by moving select products to the standard rate. The government is also prepared to reduce or defer spending in case revenues fall short of expectations.
The report highlights ongoing reforms across key sectors. The government has pledged to fully deregulate the sugar sector, continue tariff adjustments in the power sector, reduce system losses, and cut costs. Over the next two years, point-of-sale systems will be installed across 40,000 large retailers, while all provinces move toward harmonised sales tax procedures. During the current fiscal year, spending on new development schemes will be restricted to 10 percent of the Public Sector Development Programme, prioritising the completion of approximately Rs2.5 trillion worth of ongoing projects. From FY27, a greater focus will be placed on climate-related development schemes, with public procurement shifting to digital e-pads and compliance reports to be submitted to the president by March 2026.
Social protection measures include an increase in the Kafalat cash transfer under BISP to Rs14,500 per quarter from January 2026, with coverage expanded to 10.2 million families. Biometric verification for payments will remain mandatory, and the e-wallet system is scheduled for launch by June 2026.
Energy sector reforms will continue with annual tariff rebasing shifted from July to January 2026. The government aims to settle Rs1.2 trillion owed to commercial banks and eliminate Rs128 billion in interest payments to independent power producers while maintaining circular debt at zero inflow through FY2031.
On fiscal performance, the IMF notes that Pakistan delivered a 1.3 percent primary surplus in FY2025, with foreign exchange reserves rising from $9.4 billion to $14.5 billion within one year. The report also highlights temporary inflationary pressures due to floods, projecting that inflation will ease to 7 percent in the current fiscal year, provided monetary policy remains tight and exchange rates flexible.
The IMF stressed that the 2022 floods underscored Pakistan’s climate vulnerability, affecting seven million people and causing widespread damage. The Fund urged stronger climate adaptation measures, improved water management, and enhanced disaster preparedness. It also emphasised sustained reforms in taxation, governance, state-owned enterprises, energy, trade, and investment to secure long-term growth and strengthen macroeconomic stability.
The report concludes that while Pakistan’s economic recovery remains fragile, policy continuity and consistent implementation of reforms will be critical to lower debt, increase revenue, and support sustainable growth in the coming years.
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