IMF Flags Tax Shortfall And Loan Delays As Challenges For Pakistan's $7 Billion Loan Package

The IMF has flagged Pakistan's tax shortfall and a delay in materialising foreign loans, among other issues, as challenges in implementing the $7 billion loan package. At the end of the International Monetary Fund mission, which for five days held in-depth meetings with Pakistan officials about the implementation of conditions linked with the loan, the global lender also expressed concerns about Punjab's new agriculture income tax law which is still not fully aligned with the federal legislation and deviated from the National Fiscal Pact, The Express Tribune reported.

At the end of the International Monetary Fund mission, which for five days held in-depth meetings with Pakistan officials about the implementation of conditions linked with the loan, the global lender also expressed concerns about Punjab's new agriculture income tax law which is still not fully aligned with the federal legislation and deviated from the National Fiscal Pact, The Express Tribune reported.

A source said the IMF mission flagged two major concerns on Friday: the Federal Board of Revenue's underperformance and a delay in finalising the loans to fill the $2.5 billion gap.

The global lender again asked Pakistan to contact Riyadh to secure oil on deferred payments and request Beijing to reschedule debt.

In addition, the IMF had concerns about the delay in the privatisation of the power distribution companies and stuck to its condition of amending the Pakistan Sovereign Wealth Fund Act by the end of December.

The IMF emphasised amending the gas sector's definition of circular debt and ensuring its monthly reporting. Both the power and the petroleum divisions do not regularly report these numbers.

The IMF also found flaws in the implementation of the National Fiscal Pact signed by all five provincial finance ministers to align the income tax rates and transfer some expenditure responsibilities to the provinces.

The sources said the IMF asked the property tax and agriculture income tax regime by provinces to be brought in line with the FBR through legislation.

Although the Punjab Assembly passed the Agriculture Income Tax Amendment Act of 2024, it fell below the desired target of raising the agriculture income tax rates to 45%.

Punjab Information Minister Azma Bukhari denied any breach of the pact and said the newly amended provincial law addressed the needs of the National Fiscal Pact.

"It's not in any breach. Even the IMF has read the amendments and is fine with them." "If there is any breach then the IMF would have said that during the last two days' meetings," the information minister said.

In addition to Punjab, the Sindh government also violated the National Fiscal Pact as it did not show any serious intention to implement it during meetings with the IMF, sources said.

In yet another major development, the finance ministry on Friday withdrew its Oct. 31 report saying the Punjab government ran a budget deficit of Rs 160 billion, missing the overall cash surplus target of Rs 342 billion.

The Pakistani authorities however claimed the IMF had not yet given its final verdict on the issue of bridging revenue shortfalls and would send the 'asks' after consultations with its headquarters in Washington.