Why IMF doubts Pakistan’s tax math and loan credibility as $1 bn loan hangs in balance

Missed targets, stuck litigation, and shaky assumptions leave IMF uneasy as Pakistan seeks next loan tranche

Pakistan is once again in the spotlight of the International Monetary Fund (IMF). The Fund’s visiting mission has raised serious concerns over Islamabad’s inability to meet tax collection targets and its overreliance on court-pending cases worth more than PKR 170 billion.

The issue came up during the first round of discussions this week in Islamabad as part of the IMF’s second review of its bailout programme, which is expected to unlock a $1 billion loan tranche. According to The Express Tribune, the IMF team was blunt about Pakistan’s missed fiscal targets and the prolonged litigation blocking crucial revenues.

The numbers that don’t add up

The Federal Board of Revenue (FBR) collected PKR 11.74 trillion in FY25 against an annual target of PKR 12.9 trillion, missing both its revenue goal and the agreed tax-to-GDP ratio of 10.5 percent. The ratio did improve slightly, up 1.4 percentage points over last year, but still fell short of IMF expectations, Minister of State for Finance Bilal Kayani admitted, as per The Express Tribune.

The shortfall wasn’t small. New tax measures announced in the budget were supposed to raise PKR 1.2 trillion. In reality, they yielded just PKR 800 billion. Lower-than-expected inflation, 4.5 percent compared to earlier estimates, meant the government collected less 'inflation tax.' That contributed only PKR 766 billion, far short of projections. Sluggish growth in large-scale manufacturing and a downturn in the real estate sector further hurt revenues.

The litigation logjam

A big part of the revenue plan hinged on favourable Supreme Court verdicts. The FBR had told the IMF that Pakistan’s top court would rule by June on high-stakes 'super tax' cases, disputed by 10 key sectors and oil companies. These rulings were expected to unlock PKR 177 billion by September.

But the judgments are still pending. Hearings have started, arguments in one case have concluded, and the government has made its presentations in another. Still, no verdicts have been issued. The delays mean Pakistan is again at risk of missing its quarterly targets.

The IMF’s concern is simple: when revenue projections rely on court decisions instead of stable tax administration, the fiscal math becomes unpredictable.

IMF’s deeper worry

This is not just about a missed target. It’s about credibility. The IMF wants to know whether Pakistan’s fiscal assumptions are based on enforceable policies or wishful thinking.

As one IMF staff report earlier noted, Pakistan’s reliance on 'litigation-based recoveries' exposes the tax system to risks of delays and adverse rulings. The Fund has consistently pushed for structural reforms, broadening the tax base, cutting exemptions, improving enforcement, rather than one-off windfalls.

The outgoing IMF tax expert for Pakistan, Julieth Pico Mejia, who attended her last meeting in Islamabad this week, has repeatedly highlighted the need for durable revenue measures.

Why Pakistan is struggling

Several factors make Pakistan’s tax challenge different from other IMF borrowers:

• Narrow tax base: Large parts of agriculture and services remain outside the net.
• Heavy litigation: Big businesses often drag cases for years, betting that governments will eventually settle.
• Weak enforcement: Administrative capacity at FBR remains overstretched.
• Political pushback: Attempts to tax powerful sectors, real estate, traders, big corporations, often run into political resistance.

Where the numbers stand

To hit its September target, the FBR would have needed to collect around PKR 140 billion every day in the final week of the month. With only PKR 2.4 trillion collected so far, officials, as per The Express Tribune, admit the task is 'nearly impossible' under current conditions.

At the heart of the problem is how Pakistan’s fiscal strategy has come to depend on the judiciary. Instead of enforcing taxes upfront, the government increasingly factors in revenue that may or may not materialise depending on court verdicts.

The super tax cases illustrate this paradox. Businesses argue the tax is discriminatory. The government insists it is necessary for fiscal stability. Until the Constitutional Bench rules, both the government’s budget and the IMF’s projections remain in limbo.