$1bn Tranche at Risk Over Budget Shortfalls and Reform Gaps, IMF Talks Stall

The crucial negotiations between Pakistan and the International Monetary Fund (IMF) for a $1 billion loan tranche have concluded without a staff-level agreement. While Pakistan technically met most quantitative criteria for late 2025, the global lender remains unconvinced that the government can maintain fiscal discipline through the end of the fiscal year in June.

The Fiscal Standoff: Missing the Surplus Target

The core of the deadlock lies in the Primary Budget Surplus. Pakistan committed to a surplus of Rs 3.15 trillion, but current projections suggest this will be missed significantly.

• FBR Performance: The IMF is “dissatisfied” with the tax machinery. Even after receiving incentives like 1,000 new cars and four extra salaries, the FBR is struggling to collect even Rs 13.5 trillion, far below the initial Rs 14.13 trillion goal.
• Austerity Conflict: In a confusing turn, while the Prime Minister notified a 4-day workweek for fuel conservation, the FBR issued its own notification requiring staff to work 5 days a week to meet tax targets—a move that highlights the desperation within the revenue department.

Governance and SOE Reforms Under Fire

The IMF mission, led by Iva Petrova, raised sharp objections to what it views as a “reversal” of transparency and governance reforms:

• Asset Disclosure: The Fund has demanded the government withdraw recent amendments to the Election Commission of Pakistan (ECP) Act, which shielded parliamentarians from disclosing their assets.
• SOE Board Seats: The IMF questioned why civil servants are still being appointed to State-Owned Enterprise (SOE) boards as “private members,” demanding their immediate removal to ensure independent management.
• Privatization Delays: The government admitted it cannot privatize the three targeted Power Distribution Companies (DISCOs) before the fall of 2026, further frustrating the mission.

Power Sector and Subsidies

Energy sector reforms remain a major sticking point as Pakistan prepares for the next fiscal year:

• Circular Debt: The IMF rejected a request for Rs 500 billion in circular debt additions, insisting the flow be restricted to Rs 300 billion.
• Subsidies: The government’s request for a Rs 990 billion power subsidy was denied; the IMF has capped it at Rs 800 billion.
• Carbon Levy: Pakistan’s request to abolish the carbon levy on furnace oil was flatly rejected, as the government had already utilized the funds drawn against this specific benchmark.

Virtual Continuation and May Mission

The IMF mission has departed for Washington, and remaining discussions will continue virtually. However, the “real” finalization is now expected to occur in May 2026, when a fresh mission arrives to hammer out the budget for the next fiscal year. This delay places additional pressure on the PKR and the country’s foreign exchange reserves, as the $1 billion disbursement remains in limbo.

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