IMF Postpones Agreement at Staff Level with Pakistan; Online Discussions Will Proceed
After a two week in person visit the International Monetary Fund (IMF) concluded its first assessment of Pakistan’s $7 billion Extended Fund Facility (EFF) without concluding a Staff Level Agreement (SLA). After operating from February 24 to March 14, 2025, the mission has now switched to virtual talks indicating a delay that would affect Pakistan’s immediate need for outside funding.
The IMF welcomed “significant progress” in talks with Pakistani officials in its formal statement, but it also affirmed that more work is required. Talks will continue virtually in the days ahead, the Fund said, adding that “the IMF and the Pakistani authorities made significant progress toward reaching a Staff Level Agreement on the first review under the 37-month Extended Arrangement.”
Effect on the Economy of Pakistan
Pakistan’s precarious external account stability may be impacted by this delay. A successful SLA is tied to several anticipated inflows thus Pakistan would have to turn to more costly commercial borrowings to satisfy foreign exchange reserve targets according to Shankar Talreja, an analyst at Topline Securities.
The governor of the State Bank of Pakistan made clear in a previous briefing that approval from the IMF is required for certain inflows. Since there is now no SLA in place access to such funds may be delayed which would strain the reserves of the central bank and the stability of the currency rate.
Pakistan’s Actions to Fulfill IMF Requirements
The government has already made a number of fiscal actions to comply with IMF guidelines in advance of the SLA:
- Raised the Petroleum Development Levy (PDL) on gasoline and diesel by Rs. 10 per liter.
- Increased the grid charge on captive power generation by Rs. 791 per mmbtu.
It is anticipated that the PDL hike alone will generate an additional Rs. 14–15 billion in income each month. The first eight months of the fiscal year had seen the collection of Rs. 728 billion, or 68% of the IMF’s objective of Rs. 1.066 trillion for FY25.
analysts believe the IMF’s PDL target will be achieved, hitting the government’s own higher goal of Rs. 1.281 trillion would require a significant 25% increase in fuel sales in the last four months of the fiscal year.
Updated GDP Estimates and Revenue Goals
In a significant move, it has been reported that the IMF has agreed to reduce the Federal Board of Revenue’s (FBR) revenue target by Rs. 620 billion to Rs. 12.35 trillion. This change is linked to revised nominal GDP forecasts which were reduced from Rs. 123 trillion to Rs. 116.5 trillion because of weaker economic growth and lower inflation.
Pakistan is still on course to fulfill the 10.6% tax-to-GDP ratio objective meeting a fundamental IMF requirement albeit this downward revision.
Timeline and Historical Similarities
Pakistan’s experience with the previous EFF program in which the SLA after the May 2024 review was not concluded until July 12, 2024 s reflected in this delay. It took an additional two and a half months for the IMF board to approve the subsequent plan which was contingent on the government fulfilling previous obligations such as announcing the FY25 budget, raising electricity rates and adjusting gas prices.
In Bangladesh and Sri Lanka where the IMF struck agreements but postponed payments until certain tax and budget reforms were put into place comparable timelines have been noted.
What Comes Next?
According to Topline Securities, in order to gain board approval by the end of June, the government may now need to introduce fresh fiscal measures for the upcoming FY26 budget or perhaps release the budget early. According to Talreja, “the board approval may contain preconditions like passage of the FY26 budget in line with IMF guidelines, even if the SLA is achieved earlier.”
It is anticipated that the current virtual discussions will center on:
- More tax reforms for the budget for FY26.
- Additional reorganization of the energy sector.
- Updates on PIA and other state-owned company privatization.
Economic experts say that although if delays could cause short-term uncertainty, the ultimate SLA and board approval are still attainable, particularly if Pakistan keeps up its structural transformation and fiscal restraint.
