Pakistan falls short of 3 key IMF targets, missing revenue benchmarks for $7 billion bailout package's 2nd review

Islamabad [Pakistan], August 6 : Pakistan has missed out on three of its five major fiscal conditions set by the International Monetary Fund (IMF) for the second review of its USD 7 billion bailout package, The Express Tribune reported.

According to The Express Tribune, the shortfall is attributed to provinces failing to generate the expected cash surpluses and the federal government falling short of tax collection targets.

However, the Pakistani government expects that it would face minimal obstacles during its next month's review talks for the release of the next USD 1 billion tranche.

A fiscal operations summary from the Pakistani Ministry of Finance revealed that the provinces were unable to save the targeted PKR 1.2 trillion in the last fiscal year, ending in June, due to a sharp rise in provincial expenditures, The Express Tribune reported.

Similarly, Pakistan's Federal Board of Revenue (FBR) missed two key targets: collecting total revenues of PKR 12.3 trillion and PKR 50 billion from retailers under the Tajir Dost Scheme.

The only silver lining in all the fallout is its primary budget surplus target of PKR 2.4 trillion, which was achieved alongside total revenues collected by the four provinces, The Express Tribune reported.

This marks the second consecutive year of a primary surplus and the highest in 24 years, which has surpassed the IMF expectations, The Express Tribune reported.

The Pakistani federal government has put the whole blame for the setbacks on provincial overspending while stating that it had maintained fiscal discipline.

The overall fiscal deficit declined to 5.4 per cent of GDP (PKR 6.2 trillion), below the original target of 5.9 per cent, which is still not that significant, considering the economic crisis that the country is facing currently.

While the government has maintained relative fiscal stability, official data shows that net revenues were still PKR 1.2 trillion short of covering interest payments and defence expenditures, with additional spending financed through borrowing, The Express Tribune reported.

The federal government reported a primary surplus of PKR 2.7 trillion (2.4 per cent of GDP), exceeding the IMF target.

Provinces collectively generated a cash surplus of PKR 921 billion, missing the IMF target by PKR 280 billion. Punjab recorded a surplus of PKR 348 billion, Sindh PKR 283 billion, Khyber-Pakhtunkhwa PKR 176 billion, and Balochistan PKR 113 billion, though each province reported statistical discrepancies due to additional or off-budget expenditures, The Express Tribune reported.

Provincial tax collections totalled PKR 979 billion, exceeding IMF targets by PKR 58 billion. At the same time, the FBR fell short of its overall revenue target of PKR 12.32 trillion and collected negligible amounts under the Tajir Dost Scheme. Non-tax revenues, particularly from petroleum levies, totalled over PKR 5.6 trillion, with petroleum levy collections reaching PKR 1.22 trillion after recent rate hikes.

On the expenditure side, the federal government spent PKR 17.1 trillion, with current expenditures at PKR 15.8 trillion, up 15 per cent from the previous year, largely due to higher interest payments and defence spending.

Interest costs rose to PKR 8.9 trillion, and defence spending reached PKR 2.2 trillion. After distributing PKR 6.9 trillion to provinces, federal net income stood at PKR 9.9 trillion, falling short of covering interest and defence outlays by PKR 1.2 trillion, The Express Tribune reported.

The Finance Ministry attributed success in maintaining primary current expenditures within limits to lower subsidy releases, which were only 49 per cent of the allocated target. Federal development spending (PSDP) rose to PKR 1.05 trillion, a 43 per cent increase over the previous fiscal year.

Overall, while Pakistan fell short on three key IMF conditions, the government's fiscal management and achievement of a primary surplus provide a measure of stability ahead of the upcoming review.

The IMF has set about 50 conditions under the $7 billion bailout package; some of those are monitored on a quarterly and annual basis and are linked with the approval of the loan tranches.

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