It is the 25th IMF Programme for Pakistan since 1958.
IMF Approves Most Expensive Loan of $7 Billion for Pakistan as the country has been looking for an Extended Fund Facility since the formation of new government in February 2024. It is the 6th Extended Fund Facility for the Pakistan. The Extended Fund Facility is a type of financial assistance that IMF provides to countries with problem of medium term balance of payments. The Fund focuses on structural weaknesses that require a certain time period for reforms to take place. The EFF programs are meant for a period of 3 years.
The new tranche of IMF loans come with serious challenges for Pakistan. Pakistan has to settle its fiscal management during the course of this loan period. The terms of the loan involve hardcore agricultural reforms and restructuring of financial management between the provinces and the federation. Pakistan will adopt significant changes to its mechanism of agricultural taxation and may introduce a constitutional amendment for it. Moreover, the federal government will transfer some of its fiscal responsibilities to the federating units under the IMF Programme.
Pakistan will immediately receive a tranche of $1.1 billion as this programme has gained approval. Pakistan was required to introduce major taxation changes for the programme. Last year, 81% of revenue was used for debt servicing of domestic and external debts. It was a key impediment in the IMF loan’s approval for several months. However, there were stringent efforts from Pakistani government to overcome this challenge.
Additional Taxes for IMF Programme
Pakistan has imposed additional taxes of PKR 1.8 trillion in the fiscal year 2025 and increased electricity prices up to 51%. It will also manage the Sovereign Wealth Fund under the directions of IMF. The agriculture income tax will also increase to 45% from the next fiscal year.
IMF has demanded transparency in public finances, rebuilding foreign exchange reserves, reducing fiscal risks from state-owned enterprises, and improving the business environment in Pakistan. The provincial governments, their budgets and performance are also under scrutiny in the new IMF Programme.
During negotiations, Pakistan’s sovereign guarantee was rejected. Instead, Pakistan has given commitments from friendly nations that it would not repay the $12.7 billion debt to Saudi Arabia, China, the United Arab Emirates and Kuwait during the programme period.
As Pakistan’s economy was showing the signs of collapse, the new IMF Programme is a sigh of relief for the entire nation.
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