The International Monetary Fund (IMF) in the late hours of Friday termed Pakistan’s implementation of its $7 billion Extended Fund Facility (EFF) as “strong” but analysts noted that a staff-level agreement (SLA) had not been signed after talks with the Fund’s review mission.

The statement comes hours after Pakistan and the IMF concluded the first biannual review of the $7 billion loan programme on a positive note, without imposing additional revenue measures.

Instead, the government committed to maintaining fiscal targets through expenditure controls, particularly the development programme.

In an end-of-mission statement, mission chief Nathan Porter said: “Programme implementation has been strong, and the discussions have made considerable progress in several areas, including the planned fiscal consolidation to durably reduce public debt, maintenance of sufficiently tight monetary policy to maintain low inflation, acceleration of cost-reducing reforms to improve energy sector viability.”

An IMF team, led by Porter, visited Pakistan from February 24 to March 14, the statement recalled.

The Fund noted that it held discussions on the first review of the loan programme supported by the EFF “and on a possible new arrangement under the IMF’s Resilience and Sustainability Facility (RSF)”.

“The IMF and the Pakistani authorities made significant progress toward reaching a staff-level agreement (SLA) on the first review under the 37-month Extended Arrangement under the Extended Fund Facility (EFF),” Porter was quoted as saying.

He further said that positive discussions were held on the “implementation of Pakistan’s structural reform agenda to accelerate growth, while strengthening social protection and rebuilding health and education spending”.

On a possible arrangement under the RSF, Porter noted that “progress has also been made in discussions on the authorities’ climate reform agenda, which aims to reduce vulnerabilities from natural disasters-related risks, and accompanying reforms”.

A separate technical mission from the IMF also visited the country last month on Pakistan’s request for over $1bn in additional financing for climate resilience.

“The mission and the authorities will continue policy discussions virtually to finalise these discussions over the coming days,” the IMF official added.

He extended the Fund’s appreciation to the “Pakistani authorities, private sector, and development partners for fruitful discussions and their hospitality throughout this mission”.

Pakis­tan and the IMF had reached a three-year, $7 billion aid package deal in July 2024, with the new programme set to allow the country to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth”.

The ongoing 37-month EFF programme consists of six reviews over the life of the bailout, and the release of the next tranche of approximately $1bn will be contingent on the success of the performance review.

However, economy journalist and Dawn columnist Khurram Husain noted on X: “Pakistan and IMF fail to reach Staff-Level Agreement during team’s visit to [Islamabad] for first review of the EFF.

“Discussions to continue virtually. Statement says programme implementation is ‘strong’ but provides no hint of where the sticking points are,” Husain added.

‘IMF mission appreciates overall performance’

Official sources had confirmed that the draft of the Memorandum of Economic and Fiscal Policies (MEFP) was still being finalised before the formal announcement of an SLA. This would be followed by IMF’s Executive Board approval for the disbursement of about $1.1bn by early next month.

The officials said the most challenging aspect of the two-week engagements pertained to gas rates for industrial captive power plants, but a resolution was reached to the satisfaction of the IMF delegation.

The passage of the law for the introduction of agriculture income tax by all four provincial assemblies was also considered a landmark step, and the two sides agr­eed that a lot needed to be done on the ground for effective recoveries starting next year’s budget.

The two sides would remain engaged over the next couple of months to address technical and procedural hiccups in aligning four provinces.

Revised macroeconomic indicators, particularly GDP growth projections, led to a downward revision of federal tax collection estimates by more than Rs600bn. The original budget projection of Rs1.29 trillion has now been adjusted to Rs1.23tr.

The officials said the IMF staff mission appreciated the overall performance on benchmarks and targets, but not without emphasising improved collections from retail and wholesale sectors where the authorities have so far struggled to meet targets.

The Fund’s team also called for improved collections from real estate sectors. The Federal Board of Revenue (FBR) reiterated its proposal to ease taxation on the real estate sector for better recoveries. The two sides may discuss it further in the run-up to the next year’s budget.

The second-quarter estimates for GDP resulted in a downward revision in the size of the economy to about Rs116tr from Rs124tr estimated for the current year in the budget 2024-25. Lower-than-projected inflation and economic growth were considered legitimate factors for revenue shortfall but still within the tax-to-GDP ratio targets.

Informed sources said the two sides would remain in contact virtually to finalise the MEFP and SLA and even thereafter for the next year’s budget consultations.

The sources highlighted that for the first time over the past programme reviews, the power sector had also met its targets on the back of higher base tariffs, lower interest rates, stable currency, etc, although technical losses and insufficient recoveries worried the IMF mission.

The IMF also stressed improvements in the track-and-trace system across sectors and enhanced implementation of point-of-sale (POS) systems in commercial activities. It also called for strong efforts to privatise power distribution companies and the Pakistan International Airlines.