Pakistan on Track to Secure $1 Billion IMF Tranche — Despite Policy Slippages

ISLAMABAD | October 4, 2025 – Pakistan is poised to receive over $1 billion from the International Monetary Fund (IMF) under the third tranche of the $7 billion Extended Fund Facility (EFF) — even as the country faces mounting fiscal and policy challenges.

Technical talks have wrapped up, and policy-level negotiations with the IMF review mission begin Monday. A couple of waivers are likely before Finance Minister Muhammad Aurangzeb closes the review later this week (Oct 9–10).

Key Numbers

• $1 B+ IMF tranche expected early Nov
• FBR shortfall: ₨ 200 bn in Q1 FY26
• Provincial surplus targets: Punjab ₨ 740 bn | Sindh ₨ 370 bn | KP ₨ 220 bn | Balochistan ₨ 155 bn

Power Sector Surprise: Lower Circular Debt, Better Recoveries

In a rare bright spot, the power sector has outperformed expectations, cutting circular debt through targeted subsidy reforms and fresh replacement loans. Recoveries have improved, providing fiscal breathing space.

Revenue Misses & Provincial Slippages Under IMF Microscope

But federal revenues and provincial budget surpluses are under heavy scrutiny:

• FBR missed its FY25 target by a wide margin and recorded a ₨ 200 billion shortfall in Q1 FY26.
• This, despite an expansive modernization plan (including a new vehicle fleet).
• Punjab & Sindh governments failed to meet their cash surplus commitments; Sindh even announced a deficit budget for FY26.

The IMF has pressed Islamabad to bridge gaps through additional measures and enforce provincial fiscal discipline — even as flood-related demands complicate implementation.

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Agricultural Tax Collection Stalls Amid Flood Impact

All provinces passed agricultural income tax laws last year to meet IMF conditions, but implementation remains unclear, especially in flood-hit Punjab and Sindh. Provincial governments are pushing for relaxations and waivers, linking their surpluses to federal revenue performance.

Gas Sector Liabilities & SOE Reforms Still Stuck

Talks also covered:

• Rising circular debt in the gas sector, as liabilities shift from power.
• Unresolved issues on SOE law compliance, governance, and disclosure under the Pakistan Wealth Fund.

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Climate Funding vs Refinery Incentives

The IMF has rejected Pakistan’s push for tax breaks on refinery upgrades — a move Islamabad warns could endanger $6 billion in new investment. The Fund argues exemptions would undermine the $1.4 billion Resilience and Sustainability Facility (RSF) for climate projects.

The Petroleum Division insists outdated refineries pose environmental and health risks — calling the IMF stance a “technical misunderstanding.”

The Road Ahead

Pakistan has met most quantitative targets for end-June 2025 but lags on structural reforms. The global political climate is favorable, with major IMF board members backing Islamabad.

If final waivers are agreed this week, the $1 billion tranche is expected early next month, after board approval.

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