Govt hopeful for IMF's $1.1 billion tranche amid review

A delegation from the International Monetary Fund (IMF) has begun the first biannual review of the $7 billion Extended Fund Facility (EFF) program. According to reports, Islamabad believes that talks will remain successful and that Pakistan is on track to receive a whopping $1.1 billion from the international creditor within weeks.

The global lender’s mission is comprised of nine members and is headed by senior IMF economist Nathan Porter. As per credible reports, the IMF team will meet with Pakistani lawmakers and officials over the course of 10 days (March 3 to 14) to ascertain whether certain conditions have been met.

These conditions pertain to Pakistan’s compliance with quantitative targets, performance criteria and structural benchmarks set by the IMF as per the 37-month EFF program. Earlier, reports had revealed that there had been difficulties regarding the following of certain deadlines; however, Islamabad had successfully met these deadlines, albeit with some minor delays.

Reportedly, a high-ranking public official commented that the review was based on the first half of fiscal year (FY) 2024-25, which some believe could be a cause for concern. This is because some targets remained unmet at that point in time, and since the disbursement of the $1.1 billion tranche is subject to IMF’s review, the EFF program seemed to fall under threat.

However, the senior official was quick to outline that measures had been taken to ensure that targets were met, which may earn Pakistan IMF’s grace. According to reports, the greatest shortfall from the targeted amount was that of revenue, which highlights the failure of the Federal Board of Revenue (FBR).

At the end of the first half of FY 2024-25, the FBR reportedly missed its revenue target by a staggering 386 billion rupees. However, Islamabad has balanced this shortcoming by utilizing its above-par primary budget surplus and revenue-to-GDP ratios.

Islamabad achieved its budget surplus largely in part because of the State Bank of Pakistan’s (SBP) exceptional profit levels. The SBP has to dedicate a portion of its profits to the federal government. Moreover, petroleum levies have allowed the government to augment its income to meet targets.

Many worry about the sustainability of holding the aforementioned budget surplus. While levies on petroleum are a stable source of income for the federal government, the same cannot be said for SBP profits.

One of the major reasons why the SBP managed to generate abnormal profits was the hike in interest rates, which was witnessed in 2023-24. However, with interest rates normalising again, many expect SBP’s contributions to the budget to shrink.

Hence, while authorities have utilised SBP profits to meet targets, this may not be possible further down the line if targets remain unmet at the next biannual review.