Pakistan has failed to meet three out of the five critical targets set by the International Monetary Fund (IMF) for the second review of its $7 billion bailout programme, according to a report by The Express Tribune on Wednesday. The missed benchmarks, related to provincial savings and tax collection, underscore ongoing fiscal mismanagement, even as Islamabad touts progress on budget surplus goals.
Citing the Ministry of Finance's fiscal operations summary, the report stated that Pakistan’s provinces failed to meet the promised savings target of PKR 1.2 trillion in the fiscal year that ended in June. The shortfall was attributed to increased provincial expenditures, which the federal government could not control.
Meanwhile, the Federal Board of Revenue (FBR) missed two major fiscal targets: collecting PKR 12.3 trillion in total revenues and generating PKR 50 billion under the much-hyped Tajir Dost Scheme -- a programme aimed at taxing retailers. The FBR reportedly failed to collect any significant revenue under the scheme.
Despite these setbacks, Islamabad managed to record a primary budget surplus of PKR 2.4 trillion, supported by contributions from all four provinces. “This marks the second consecutive year of a primary surplus and the highest recorded in 24 years, exceeding the target set by the IMF,” The Express Tribune added.
The finance ministry, it said, “tried hard to stay on the fiscal path, but the setback came from the provincial capitals, which were not under the control of the federal government.”
Moreover, the overall fiscal deficit narrowed to 5.4% of GDP (PKR 6.2 trillion), well below the original 5.9% target. Officials credited tighter expenditure control enforced by the finance secretary throughout the fiscal year.
IMF conditions and continued borrowing
The $7 billion IMF bailout, signed last year, carries nearly 50 stringent conditions, some of which are reviewed quarterly and annually. These requirements are linked directly to the release of loan tranches. While the federal government exceeded the primary surplus benchmark, reporting a surplus of PKR 2.7 trillion or 2.4% of GDP, other critical areas remain problematic.
Notably, The Express Tribune report revealed that net federal revenues fell short by PKR 1.2 trillion -- an amount insufficient to cover even interest payments and defence spending. Most of the remaining expenditures continue to be funded through additional borrowing, exposing Pakistan’s persistent reliance on debt.
The provinces, despite having assured both the IMF and federal government of generating PKR 1.2 trillion in cash surpluses, collectively produced only PKR 921 billion, missing the target by PKR 280 billion.
Still, the government is unlikely to face serious resistance during the upcoming IMF review for the next $1 billion tranche, expected next month, due to progress on other important benchmarks, according to the report.
Grey List warning: India steps up diplomatic pressure
The timing of Pakistan’s underperformance comes amid renewed international scrutiny, particularly by India, which has intensified efforts to bring Pakistan back onto the Financial Action Task Force (FATF) grey list following the deadly Pahalgam terror attack. The missed IMF fiscal targets, especially in tax compliance and transparency, may bolster India’s case by highlighting Islamabad’s continued governance failures and inability to curb economic leakages, many of which are linked to terror financing loopholes.
India has already launched a multi-pronged diplomatic campaign, presenting dossiers to key FATF members detailing Pakistan’s terror financing infrastructure, including alleged misuse of cash-based schemes and informal trading networks. The FBR’s failure to mobilise retail tax under the Tajir Dost Scheme only amplifies concerns about Pakistan’s informal economy being left largely unchecked.
Pakistan’s recent attempts to court favour with Gulf and Western powers are unlikely to shield it indefinitely if IMF conditions continue to be flouted and evidence of terror-linked financing resurfaces. With the next FATF review on the horizon, Islamabad’s fiscal backsliding may prove politically costly.
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