AN IMF delegation is in Islamabad to assess progress on the Fund’s ongoing $7bn funding programme amidst hopes that the review will not encounter any serious obstacles that could delay the next tranche.

The mission will evaluate how Pakistan has done on quantitative performance criteria, structural benchmarks and indicative targets for the first half of the current fiscal year. There have been some “technical slippages”, such as delays in meeting the deadlines for certain goals, like legislation on agriculture tax.

Officials insist that they have covered all the bases, although the failure to meet the tax target will likely remain a major source of worry. Yet, the officials are confident that the IMF will ignore the slippages in the tax target because of a “higher-than-targeted primary budget surplus and greater-than-estimated revenue-to-GDP ratio”.

The FBR attributes the shortfall largely to reduced tax collection from imports, sluggish LSM growth and an unexpected drop in inflation. The IMF’s response to the tax shortfall remains to be seen. However, the stock market’s decline betrays investors’ anxiety at the anticipated contingency measures under the Fund’s pressure to pull off the actual tax target.

The investors’ anxiety notwithstanding, the IMF’s scrutiny of Pakistan’s performance is most likely to progress smoothly without any harsh new conditions for the second half of the present fiscal year, or punitive demands from the lender for tax slippages. That said, the ongoing review will be critical in determining how the economy moves forward.

On its success depend the strengthening of economic stability, official flows from other multilateral agencies, and upgradation of the sovereign credit rating, which is crucial to Islamabad’s plans to raise funds from international bond markets. Any hiccups in the programme would put paid to these plans and lead to a new wave of uncertainty and volatility.

For now, the macroeconomic indicators suggest a temporary reprieve: the rupee has held steady, inflation has plunged to 1.4pc, the current account is running a surplus of over $600m, remittances have jumped to over $3bn a month, and exports are showing resilience.

These improvements are mostly due to financial support from the IMF and bilateral lenders, as well as stability in the global commodity markets. The price for this fragile stability has been massive though: a sharp slowdown in domestic growth as well as rising unemployment and poverty.

With the second Trump presidency in the US shaking up the global economic and political order, the need for freeing the economy from the clutches of the forces of status quo and restructuring it to get it back on its feet has never been so compelling. The current IMF bailout could be the last opportunity to avoid a repeat of the past.

Published in Dawn, March 4th, 2025