Islamabad: The International Monetary Fund (IMF) has agreed to lower Pakistan’s tax collection target by PKR 620 billion for the ongoing financial year, reducing it from PKR 12.97 trillion to PKR 12.35 trillion. Despite the shortfall, the tax-to-GDP ratio target remains unchanged at 10.6%.
The revision follows a revenue shortfall of PKR 600 billion in the first eight months of the fiscal year. To compensate, tax collection targets for the remaining months have been adjusted downward. However, the IMF has made it mandatory for the Finance Ministry to cut expenditures accordingly to ensure a primary surplus of PKR 2.4 trillion by year-end. The ministry has provided a written commitment that spending will align with the revised revenue target.
A major factor behind the revision is Pakistan’s lower-than-expected economic growth. The nominal GDP estimate has been reduced from PKR 123 trillion to PKR 116.5 trillion, with real GDP growth now expected to range between 2% and 2.25%, down from the earlier projection of 3.6%. The inflation forecast has also been revised downward, with average annual inflation now expected to be 7% instead of 12.5%.
Despite the revenue shortfall, Pakistan has successfully avoided introducing a mini-budget or increasing taxes. The Federal Board of Revenue (FBR) argued against contingency measures such as raising withholding taxes or the Federal Excise Duty (FED), and the IMF has set them aside for now. The FBR reportedly conducted a detailed internal review before negotiations, enabling it to present strong justifications against immediate tax hikes.
On the expenditure side, the Finance Ministry has assured the IMF that spending cuts will be made proportionally, while the development budget will remain untouched. So far, only PKR 650 billion to PKR 700 billion has been utilized from the revised Public Sector Development Programme (PSDP) allocation of PKR 1.15 trillion, reflecting slow implementation.
Negotiations between Pakistan and the IMF for the first review under the $7 billion Extended Fund Facility (EFF) are nearing completion. Discussions may continue virtually, or a small IMF mission could visit Pakistan in early May 2025 to finalize figures for the next fiscal year’s budget.
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