Pakistan has successfully met three out of five major fiscal conditions set by the International Monetary Fund (IMF) for the first review of its $7 billion program, attributed to improved performances by both federal and provincial governments. However, the Federal Board of Revenue (FBR) has fallen short in achieving two critical targets: surpassing Rs6 trillion in tax collections and securing a minimum of Rs23.4 billion from traders under the Tajir Dost Scheme during the first half of the fiscal year.

Fiscal Achievements and Shortcomings

The Finance Ministry’s recently released fiscal operations summary for July-December indicates that Pakistan has met the IMF’s targets concerning the primary budget surplus at the federal level, as well as net revenue collection and cash surplus objectives set for the provinces.

The federal government reported a primary surplus of Rs3.6 trillion, equivalent to 2.9% of the Gross Domestic Product (GDP), surpassing the IMF’s target of Rs2.9 trillion. This achievement is largely due to the early booking of the annual central bank profit, with the entire estimated profit of Rs2.5 trillion accounted for in the first quarter.

Collectively, the four provinces generated a cash surplus of Rs776 billion, exceeding the target of Rs750 billion. They also collected Rs442 billion in revenues, surpassing the anticipated Rs376 billion.

Despite these accomplishments, the FBR’s performance remains a concern. It failed to collect any significant amount under the Tajir Dost Scheme, falling drastically short of the Rs23.4 billion target. Additionally, against a six-month revenue target exceeding Rs6 trillion, the FBR managed to collect only Rs5.624 trillion, resulting in a shortfall of Rs384 billion.

Upcoming IMF Review and Fiscal Challenges

Finance Minister Muhammad Aurangzeb has announced that an IMF team is expected to visit in early March for the first review discussions. A successful review is essential for the disbursement of the next $1 billion loan tranche.

Sources suggest that the FBR plans to negotiate with the IMF to lower the annual tax collection target, arguing that the current economic conditions make the existing target unattainable. Prime Minister Shehbaz Sharif has previously ruled out the introduction of a mini-budget to address the tax shortfall.

Provincial Fiscal Performance

The provincial governments have demonstrated significant fiscal flexibility, benefiting from increased revenues under the National Finance Commission (NFC) award. During the July-December period, the provinces collectively spent approximately Rs3.4 trillion, with development expenditures accounting for Rs639 billion. Their total revenues amounted to Rs4.1 trillion, with Rs3.3 trillion derived from their shares in federal taxes.

A detailed breakdown of provincial performance is as follows:

• Punjab: With total revenues of Rs1.9 trillion, Punjab’s expenditures stood at Rs1.53 trillion, resulting in a surplus of Rs333 billion. However, the province reported a statistical discrepancy of Rs199 billion, primarily due to below-the-line expenditures.
• Sindh: Sindh achieved a cash surplus of Rs264 billion after spending Rs968 billion, which was below its total revenues. The province also reported a Rs22 billion statistical discrepancy.
• Khyber-Pakhtunkhwa (K-P): K-P recorded a budget surplus of Rs86 billion, with revenues of Rs678 billion and expenditures of Rs591 billion. The province also noted a statistical discrepancy of Rs34 billion.

Muzzammil Aslam, K-P’s Finance Advisor, contends that the actual cash surplus was Rs169 billion. He alleges that the federal government reduced K-P’s surplus to Rs86 billion by manipulating statistical discrepancies. Aslam further claims that the federal government halted funding for K-P’s merged districts and allocated less for current expenditures. He also asserts that an additional Rs40 billion contributed to the pension and gratuity fund was incorrectly adjusted as expenditures by the federal government.

• Balochistan: The province generated a surplus of Rs91 billion.

IMF Program and Fiscal Targets

Under the $7 billion IMF program, Pakistan has committed to approximately 40 conditions. A key requirement is for the four provincial governments to generate a combined cash surplus of Rs1.217 trillion in the current fiscal year. They have already exceeded their independent revenue target of Rs376 billion, collecting Rs442.4 billion.

The country reported a budget surplus of Rs3.6 trillion, or 2.9% of GDP, in the first half of the fiscal year, largely due to a one-time State Bank of Pakistan (SBP) profit of Rs2.5 trillion. The collection of the petroleum levy stood at Rs550 billion.

Expenditure Analysis

On the expenditure front, the federal government spent a total of Rs8.2 trillion during the first half of the fiscal year, with current expenditures reaching Rs7.7 trillion. This represents a Rs1.5 trillion (22%) increase compared to the same period last year, primarily driven by rising interest payments.

Interest payments amounted to Rs5.1 trillion, an increase of Rs1.1 trillion from the previous year. Defence spending totaled Rs890 billion, while Rs339 billion was allocated to civil government operations. Pension payments rose to Rs450 billion in the first half of the fiscal year.

Additionally, Rs237 billion worth of statistical discrepancies were recorded in federal accounts. The finance ministry attributes this to a decrease in deposits of federal government entities with scheduled banks.

After distributing the provincial share, the federal government’s net income stood at Rs5.9 trillion for the first half, which was Rs143 billion less than the combined spending on interest and defence.

Conclusion

While Pakistan has made commendable progress in meeting several IMF-imposed fiscal conditions, challenges persist, particularly in tax collection efforts by the FBR. The upcoming IMF review will be pivotal in determining the country’s fiscal trajectory and the disbursement of further financial assistance. Contin

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Pakistan Meets Key IMF Targets but Falls Short on Tax Collection Goals

Pakistan has successfully met three out of five major fiscal targets set by the International Monetary Fund (IMF) for the first review of its $7 billion loan program. This achievement is largely due to improved fiscal management at both the federal and provincial levels. However, the Federal Board of Revenue (FBR) has failed to meet crucial tax collection targets, raising concerns ahead of the upcoming IMF review.

Progress on Fiscal Targets

According to the Finance Ministry’s fiscal operations report for July-December, Pakistan has met key IMF benchmarks related to the federal primary budget surplus, net revenue collection, and provincial cash surpluses.

• The federal primary surplus reached Rs3.6 trillion (2.9% of GDP), exceeding the IMF’s target of Rs2.9 trillion. This was largely driven by the early booking of the State Bank of Pakistan’s (SBP) annual profit, which added Rs2.5 trillion in the first quarter alone.
• The four provincial governments generated a cash surplus of Rs776 billion, surpassing the target of Rs750 billion.
• The provinces also collected Rs442 billion in independent revenues, exceeding the anticipated Rs376 billion.

Tax Collection Shortfalls

Despite these fiscal achievements, the FBR struggled to meet tax collection goals:

• The FBR fell short by Rs384 billion, collecting Rs5.624 trillion against a six-month target of over Rs6 trillion.
• The Tajir Dost Scheme, aimed at increasing tax contributions from traders, failed to generate any meaningful revenue against its target of Rs23.4 billion.

With these shortfalls, the government faces pressure to either improve tax collection or adjust its targets before the upcoming IMF review.

IMF Review and Next Steps

Finance Minister Muhammad Aurangzeb has confirmed that an IMF team will visit in early March to review Pakistan’s progress. A successful review is crucial for securing the next $1 billion loan tranche.

Sources indicate that Pakistan may negotiate a reduction in the annual tax target, arguing that the current economic conditions make it unrealistic. However, Prime Minister Shehbaz Sharif has ruled out introducing a mini-budget to make up for the shortfall.

Provincial Fiscal Performance

The provincial governments have played a crucial role in meeting fiscal targets, largely due to increased revenue transfers from the National Finance Commission (NFC) award.

Breakdown of Provincial Surpluses

• Punjab: Collected Rs1.9 trillion in revenue and spent Rs1.53 trillion, generating a surplus of Rs333 billion. However, a statistical discrepancy of Rs199 billion was noted, likely due to unrecorded below-the-line expenditures.
• Sindh: Reported a cash surplus of Rs264 billion after spending Rs968 billion, with a minor Rs22 billion statistical discrepancy.
• Khyber-Pakhtunkhwa (K-P): Achieved a budget surplus of Rs86 billion, with revenues of Rs678 billion and expenditures of Rs591 billion. However, Muzzammil Aslam, K-P’s Finance Advisor, claims the actual surplus was Rs169 billion, alleging that the federal government manipulated figures to show a lower amount.
• Balochistan: Generated a surplus of Rs91 billion.

Pakistan’s Fiscal Commitments Under IMF Program

Pakistan has committed to approximately 40 conditions under the IMF’s $7 billion bailout program. One of these requirements is for the four provinces to generate a combined cash surplus of Rs1.217 trillion by the end of the fiscal year. So far, they have exceeded expectations in independent revenue collection, gathering Rs442.4 billion against a target of Rs376 billion.

In the first half of the fiscal year, Pakistan recorded an overall budget surplus of Rs3.6 trillion (2.9% of GDP), mainly due to the one-time SBP profit of Rs2.5 trillion. Additionally, the petroleum levy collection stood at Rs550 billion.

Government Spending and Interest Payments

• Total federal expenditures in July-December amounted to Rs8.2 trillion, with current expenditures reaching Rs7.7 trillion—a 22% increase compared to the same period last year.
• Interest payments surged to Rs5.1 trillion, up Rs1.1 trillion from the previous year.
• Defence spending stood at Rs890 billion, while civil government operations cost Rs339 billion.
• Pension payments increased to Rs450 billion in the first half of the fiscal year.

A statistical discrepancy of Rs237 billion was also recorded in federal accounts, attributed to changes in government deposits with banks.

Challenges Ahead

Despite progress on key fiscal metrics, Pakistan’s economic stability remains fragile due to:

• The FBR’s failure to meet tax collection goals, particularly under the Tajir Dost Scheme.
• Rising interest payments, which consumed nearly 86% of the federal government’s net income after provincial transfers.
• Concerns over the real sustainability of the primary surplus, given that it was heavily dependent on a one-time SBP profit rather than structural revenue growth.

The upcoming IMF review in March will be critical in determining whether Pakistan can continue receiving financial support or will need to make further adjustments to its fiscal strategy.