Business Recorder
EDITORIAL: The International Monetary Fund (IMF) uploaded the staff level agreement (SLA) documents on the third review under the 7 billion-dollar ongoing Extended Fund Facility programme on its website in the early hours of 16 May — a week after the Board formally approved the tranche release on 9 May premised on these documents. The agreement itself was announced on 27 March and the delay of seven weeks is being touted by independent economists as subject to the authorities implementing “prior conditions.” Two such conditions were noted; notably, actions to mobilise revenue (given the 683 billion rupee shortfall July-April) through collections of overdue tax revenue resulting from court decisions in favour of FBR (0.3 percent of GDP largely stemming from super tax); however, reports suggest that litigation continues that may end in favour of the litigants, expenditure ceilings have been revised (0.1 percent of GDP) though the cut is entirely from development expenditure with negative implications on growth instead of current expenditure, and subsidies to prevent domestic fuel price adjustments are discriminatory and fiscally unsustainable though the fact that petroleum levy is being upped to meet the revenue shortfall was not highlighted. The question is whether these prior conditions as well as those highlighted in the review documents for implementation prior to the next review remain unchanged or whether they have been adjusted due to the ongoing Middle East conflict as senior IMF officials had pledged greater assistance to member countries. The adjustment appears to be limited to macroeconomic projections and bafflingly the GDP growth for the ongoing year has been revised upward to 3.6 percent (against the programme target of 3.2 percent) on the basis that February growth was significant – an observation based on the Finance Division releasing large scale manufacturing growth of 5.9 percent July-February against 5.75 percent July-January – a rate that is being challenged by major sectors, particularly the textile sector that released data to show 150 units have shut down. Next year’s growth has been revised down to 3.5 percent against 4.1 percent. Gross official reserves target was achieved though no mention is made of the fact that all reserves are debt based – bilateral, multilateral and debt equity. Little concessions appear to have been made taking account of the impact of the Middle East conflict on our economy. The rise in transport costs has upped inflation world-wide, including in Pakistan where effects are more pronounced with very high poverty levels (43.4 percent based on caloric intake), that prompted a rise in the policy rate to 11.5 percent – a rise instead of a decline that authorities had envisaged by end December 2025. And, redundancies are expected to continue as the private sector struggles to compete with regional rivals due to high input costs exacerbated by the IMF programme conditions, including to achieve full cost recovery (recent securing of 1.25 trillion rupees to retire the circular debt, passed on its entirety to the consumers, may raise electricity cost as the government pledged to end the limit on Debt Service Surcharge in the event that the rate rises) instead of improving the massive sectoral inefficiencies. The SLA document is profusely supportive of the implementation of all agreed conditions but what must be an eye-opener is the indication in the document that while conditions were met in spirit they were not met in letter. Two examples are concerning. First the publication of the Governance and Diagnostic Assessment (GDA) was finalised but delayed for over two months, that had delayed the release of the second SLA agreement (finally reached on 11 December 2025). The GDA highlighted the fact that ministries did not implement either the right to information act (including the Ministry of Interior, National Accountability Bureau, Ministry of information and Broadcasting, Federal Investigation Agency, Federal Board of Revenue and national assembly), or the state owned enterprise law, or implemented judicial reforms identified as standardisation of judicial appointments, improving efficiency of federal administrative tribunals and special courts, strengthening integrity and conflict of interest provisions for all judicial personnel and initiating yearly public reporting on steps taken to strengthen integrity. The SLA disturbingly notes that “continuous Structural Benchmark on not granting preferential tax treatments was missed due to an extension of the tax exemption for sugar imports, which was subsequently repealed without any utilization,” an observation that lends credence to claims of heavy-handedness by FBR officials to increase collections – an objective that bypassed influential sectors, a bias abandoned when no doubt pointed out by the IMF team. The report notes downside risks related to geopolitical tensions and intensification of conflicts that would lead to higher interest rates and rising risk premia as well as fiscal policy slippages (sadly the Fund remains indifferent to the major source of collections which continue to be on indirect taxes whose incidence on the poor is greater than on the rich); and for the first time noted the upside risks for a faster recovery not only by claiming that implementation of their programme design would achieve development (though the Fund staff would be hard-pressed to provide a single example where its design has achieved precisely that) but from reaping economic dividends from Pakistan’s enhanced relations with bilateral partners – an acknowledgment of our mediatory role as well as the defence pact signed with Saudi Arabia with Turkey indicating an Interest to join the pact. To conclude, Pakistan is currently on the twenty-fourth IMF programme and while, as noted in the Fund assessments, Pakistan has consistently failed to implement any programme fully, and on occasion has reversed reforms on completion or suspension of the programme yet what is required is for the authorities to formulate a homegrown out-of-the-box solution and convince the Fund staff that this would be the way forward – a programme that must seek to slash current expenditure to contain the budget deficit as well as the primary deficit rather than relying on high-handed measures or borrowing domestically and internationally. Copyright Business Recorder, 2026
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