These include reforms to strengthen competition and
productivity, improve SOEs and public services, increase energy sector
viability, broaden the tax base, and build climate resilience.
Several new structural benchmarks have been introduced,
which will impact multiple sectors such as Energy and Autos, and these may be
part of the upcoming FY26 Budget.
Pakistan’s macroeconomic recovery has been cemented by
growing foreign exchange reserves and sharply lower inflation, enabling the State
Bank of Pakistan (SBP) to halve the policy rate to 11.0%.
GDP growth in FY26 is expected to reach the long-term
average, and modestly accelerate thereafter. The current account is expected to
remain in control, aided by lower oil prices and strong remittances.
This may limit pressure on the PKR, even as the IMF has
encouraged a more flexible exchange rate.
Containing the fiscal deficit, as ever, will likely prove to
be the most challenging. The projected improvement on the fiscal deficit is
contingent on tax collection, including the effective implementation of the
newly introduced Agriculture Income Tax laws.
That said, climate-related funding by the IMF (US$1.4 billion
over the course of the program) can be used for budgetary support, which is a
positive.
As of December 2024, Pakistan had met all seven quantitative
performance criteria and five of eight indicative targets. Compliance with
structural benchmarks was also generally strong.
Important structural benchmarks that have already been met
include approval of the National Fiscal Pact, and introduction of Agriculture
Income Tax laws at the provincial level. However, others are still pending
including eliminating captive power use in the gas sector. The IMF has now
introduced additional structural benchmarks.
