Frequently Asked Questions on Pakistan

Back to Top

What are the goals and policy priorities under the 2024 Extended Fund Facility with Pakistan?

The 2024 Extended Fund Facility (EFF) aims to improve the livelihoods and prospects of the Pakistani people and restore Pakistan’s external viability. To achieve this, the program is built around 4 key pillars:

1. Reinforcing the authorities' policy credibility and entrenching economic stability through sound monetary and fiscal policies and by fostering a favorable environment for private sector-led growth. The aim is to lay a solid foundation for sustainable development.
2. Strengthening public finances through higher quality public spending, enhancing the provision of critical public services, and strengthening revenue collection from currently undertaxed areas.
3. Preserving the cost of living with appropriate monetary policies that will help to limit inflation, while exchange rate flexibility will be used to support the rebuilding of foreign reserves.
4. Implementation of structural reforms to foster stronger, inclusive growth by safeguarding the viability of the energy sector, strengthening social safety nets and governance and anti-corruption efforts, reforming state-owned enterprises, and deregulating product markets. The program recognizes the importance of addressing environmental challenges as an integral part of its agenda.

Back to Top

How will the new program help the Pakistani people and protect the most vulnerable?

The main reforms under the program are focused on improving Pakistan’s competitiveness and creating a better environment for private sector-led growth, which will result in higher productivity, employment, and incomes. The new program will also support the Pakistani people and protect the most vulnerable by strengthening social safety nets and increasing investment in human capital such as training, education, and other social development opportunities. Despite necessary fiscal consolidation, the adjustment is designed to allow for the Benazir Income Support Program (BISP) to increase by 27% to 0.5% of GDP in FY25. This will allow for higher unconditional cash transfers to the poorest households.

Additionally, the program aims to expand coverage by enrolling the remaining eligible households into BISP and enhancing education, health, and nutrition conditional cash transfer programs in collaboration with the World Bank. The government is also committed to rebuilding health and education spending at the federal and provincial levels and increasing allocations to partially restore previous levels of human capital investment. These measures are designed to alleviate poverty, improve living standards, and strengthen the resilience of vulnerable populations.

Back to Top

How does the new IMF program differ from its predecessors? What will the program do to make growth more resilient in Pakistan?

The new program, unless many of its predecessors, has the advantage of beginning with economic stability already restored. This allows policy efforts to immediately focus on sustainable growth and structural reform. The program formalizes, for the first time, provincial involvement through a new National Fiscal Pact (NFP), enhancing federal-provincial fiscal relations and facilitating devolution (in line with the 18th amendment to the Constitution of Pakistan), alongside efforts to right-size the federal government. This program includes a novel revenue mobilization strategy under the NFP which aims at taxing previously undertaxed sectors such as agriculture and property, as well as retailers at the federal level, while also integrating exporters into the regular tax regime. Finally, by reducing state interventions in product markets (including the setting of prices for goods and services, correcting trade policy distortions, increasing competition, and eliminating concessions that have hindered growth, the program addresses key economic distortions from an outsized role of the state.

Back to Top

Is Pakistan’s debt sustainable?

Pakistan's debt is assessed as sustainable despite its high level, provided that the authorities remain committed to implementing sound policies and reforms that strengthen the economy and foster sustained growth. Increasing revenue fairly and efficiently is essential given the low tax-to-GDP ratio and will require enhancing tax compliance and shifting taxation towards direct, progressive taxes on undertaxed sectors such as retailers, property, and agriculture. Improving the quality of public spending and better managing the substantial gross financing needs through improved debt management and extended maturities are also crucial. However, the path to debt sustainability is narrow and could be undermined by policy slippages, particularly in implementing necessary revenue measures, or by reduced external financing. If these challenges materialize, they may exert pressure on the exchange rate and crowd out the private sector, potentially weakening growth.

Back to Top

What are the key policy recommendations to increase revenue mobilization?

The program aims to raise Pakistan's notably low tax-to-GDP ratio by 3 percent of GDP while improving the fairness and efficiency of the tax system. This will be achieved by broadening the tax base and improving tax compliance. There are three key elements to broadening the tax base: (i) increasing direct taxes by bringing previously untaxed sectors—such as retailers, property owners, and agricultural income—into the tax net and rationalizing personal and corporate income taxes; (ii) reducing exemptions and harmonize rates in the general sales tax (GST) system to streamline indirect taxation; (iii) expanding the coverage and rates of the Federal Excise Duty (FED); and (iv) rationalizing tariffs by eliminating exemptions and concessions to increase customs revenue. Provincial support for a number of these reforms is critical and welcome. Compliance efforts include enhancing revenue administration through better information sharing and digitalization.

Back to Top

How does the program enhance Pakistan’s competitiveness amidst high borrowing costs, energy prices, and taxes weighing on the private sector?

The program enhances Pakistan's competitiveness by implementing structural reforms that address key economic distortions and improve the business environment. Reforming state-owned enterprises through restructuring and privatization will enhance efficiency and reduce fiscal burdens. The program will foster a level playing field for the private sector, and lower the cost structure of the economy, by removing state-induced distortions including the setting of prices for goods and services, reforming the energy sector, and increasing competition. Measures such as streamlining subsidies, improving the foreign direct investment regime, and deepening financial intermediation aim to attract investment and stimulate economic activity. By scaling up human capital investment and enhancing governance and transparency, the program will strengthen the foundations for productivity gains and competitiveness.