ISLAMABAD: The International Monetary Fund (IMF) has shared a draft Memorandum of Economic and Financial Policies (MEFP) with Pakistani authorities, aiming to finalize a staff-level agreement under the $7 billion Extended Fund Facility (EFF). This agreement is crucial for unlocking the next $1 billion tranche, pending approval by the IMF Executive Board.
Relief for Construction Sector Under Discussion
The IMF has indicated some flexibility in providing relief to the construction and real estate sectors, but it remains uncertain whether these measures will be implemented immediately or incorporated into the next federal budget for 2025-26.
Pakistan and the IMF team had concluded discussions last Friday without finalizing the agreement, leading to further deliberations on stringent fiscal consolidation measures required by the Fund.
Key Conditions in the MEFP Draft
The MEFP draft outlines tough economic conditions for Pakistan’s fiscal management, including:
- Revised tax collection targets: The Federal Board of Revenue (FBR)’s original Rs12.97 trillion tax collection target for FY 2024-25 has been lowered to Rs12.33 trillion due to economic challenges.
- Expenditure cuts: The IMF has demanded that government spending be reduced in proportion to revenue shortfalls to ensure a primary surplus of Rs2.4 trillion by June 2025.
- Cross-subsidy on petroleum levy: A petroleum levy of Rs70 per liter has been proposed to offset electricity costs, but the IMF has raised concerns about its sustainability, especially if global oil prices increase.
- Federal Excise Duty (FED) enforcement: The IMF questioned the effectiveness of the Rs44,000 per kg FED imposed on acetate tow (used in tobacco production), as it has led to smuggling and under-invoicing from Iran and Afghanistan. The Fund has urged Pakistan to strengthen enforcement measures to prevent revenue losses.
IMF Seeks Clarity on Climate Finance Projects
The IMF is also reviewing climate finance options under its Resilience and Sustainability Facility (RSF), which could provide up to $1.2 billion in additional funding. However, the Fund has requested detailed project proposals demonstrating long-term climate resilience initiatives before approving the loan facility.
Next Steps
With the MEFP draft under review, Pakistani authorities must finalize a consensus with the IMF to secure the staff-level agreement. The approval of this agreement will determine the timing of the $1 billion tranche release and future economic measures Pakistan must undertake to remain compliant with the EFF program.
