THE IMF staff report, released after the approval of the two reviews of its bailout programme and climate facility, offers a sobering picture of the nation’s economy, which is caught in the old cycle of missed commitments, last-minute fixes and growth-constraining conditionality. Having failed to meet deadlines for 11 IMF targets, the government has now agreed to a set of as many new or revised measures, which signifies a trade-off Pakistan must accept to secure continued financing. The document shows that the government has agreed to slash power-sector subsidy to offset a Rs104bn shortfall from the captive power levy. More serious is the commitment to significantly tax pesticides, fertilisers and high-value sugary items to make up for the massive gap of Rs430bn in tax collection in the first five months of this fiscal due to the FBR’s poor performance.

The FBR’s failure to meet its tax target year after year despite the drastic increase in the tax burden on compliant taxpayers underscores the structural rigidities embedded in the tax policy that relies only on salaried individuals and organised businesses, leaving the bulk of the economy out of the net. Not just that, Finance Minister Muhammad Aurangzeb has assured the IMF that certain expenditures can be delayed until the ongoing fiscal’s last quarter if by the end of the second quarter a revenue shortfall emerges due to the implementation of the National Tariff Policy. This indicates a decades-old pattern of slashing or deferring development spending to make room for fiscal adjustment, thus undermining growth prospects. Waivers have also been sought for previously missed targets. The government also agreed to scrap all incentives for Special Economic Zones and Export Processing Zones by 2035, which could further hamper investment. In the power sector, the government has promised to complete bidding for the first round of Discos’ privatisation early next year and advance preparatory work for the Hyderabad and Sukkur companies by end-2026. Governance reforms include plans to publish asset declarations of senior civil servants by the end of 2026 and overhaul SOE laws by August. The reiteration of unmet programme targets and new goals underscores not just the slow pace of basic reforms but also confirms fears that Pakistan will essentially remain trapped in a stabilisation, low-growth mode for a longer period than it had earlier anticipated.

Published in Dawn, December 13th, 2025