ISLAMABAD: Pakistan is preparing for crucial talks with the International Monetary Fund (IMF) later this month, as the country struggles with the economic impact of devastating floods. The IMF mission will arrive on September 25 for the second review of the $7 billion Extended Fund Facility (EFF).
The recent floods have destroyed crops, disrupted food supplies, and slowed overall economic activity, prompting the government to cut its growth and inflation forecasts. GDP growth is now expected to drop from the earlier 4.2 percent estimate, while inflation may climb above the 5–7 percent target. Rice exports are likely to fall, and rising imports could further widen the trade deficit.
During the visit, the IMF is likely to press for the introduction of an Agriculture Income Tax and seek clarity on revenue targets. Islamabad is also under pressure over the delayed Governance and Corruption Diagnostic report, which was due in August.
The mission, which will stay until October 8, will discuss the release of a $1.1 billion tranche. Talks will cover changes to the Memorandum of Economic and Financial Policies (MEFP), governance reforms, and amendments to the Sovereign Wealth Fund Act. Meetings will be held with the Finance Ministry, State Bank, regulators, and provincial governments.
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So far, Pakistan has received $2.1 billion under the EFF. To secure the next payment, the government must push ahead with reforms and close a large fiscal gap. The Federal Board of Revenue (FBR) has a quarterly target of Rs. 3.1 trillion, with Rs. 1.44 trillion needed in September alone to make up for earlier shortfalls.
Flood damage has already caused a Rs. 50 billion revenue loss, including Rs. 25 billion in Punjab, where some tax offices collected less than half their usual receipts. Revenue growth stands at 15 percent, well below the 21 percent target, making the IMF talks even more challenging.
