IMF Review: Pakistan’s Fiscal Credibility Faces Critical Test Next Week

ISLAMABAD — An International Monetary Fund (IMF) mission, led by Iva Petrova, is set to arrive in Pakistan on February 25 or 26, 2026, for the third review of the $7 billion Extended Fund Facility (EFF) and the second review of the $1.1 billion Resilience and Sustainability Facility (RSF).

The approximately 15-day visit, concluding around March 11, will scrutinize Pakistan’s macroeconomic performance from July to December 2025 and evaluate adherence to reform commitments, with a strong emphasis on fiscal credibility amid ongoing pressures from high debt and structural imbalances.

Pakistan has demonstrated solid overall program execution, meeting nearly all seven quantitative performance criteria (QPCs) for the period. Key achievements include a primary budget surplus, provincial cash surpluses totalling Rs1,179 billion (bolstering federal fiscal targets), and progress in reducing the fiscal deficit from around 8% of GDP to approximately 5.4%, with debt-to-GDP easing to about 70%. Reserves have strengthened, supporting external stability and upcoming obligations like the April 2026 Eurobond maturity. These gains underscore improved fiscal discipline and policy credibility, as highlighted in recent IMF staff assessments.

However, revenue shortfalls pose a notable concern for fiscal credibility. The Federal Board of Revenue (FBR) collected Rs6,161 billion in taxes during the first half of FY 2025-26, missing the target by Rs331–339 billion (variations across reports cite Rs6.154–6.159 trillion collected against Rs6.490 trillion aimed). Shortfalls stem primarily from domestic sales tax, income tax, trader-friendly schemes, and retailer collections falling below expectations, despite year-on-year growth.

The National Fiscal Pact (NFP)—a cornerstone structural benchmark signed in September 2024—emerges as a major test of sustained fiscal commitment. The pact seeks to rebalance federal-provincial relations post-18th Amendment by transferring provincial-nature expenditures, expanding provincial tax bases (agriculture, property, services), and coordinating costs for programs like the Higher Education Commission (HEC) and Benazir Income Support Programme (BISP). While it has facilitated coordination and surpluses, full implementation remains incomplete as of mid-February 2026. Provinces have resisted expenditure shifts and cost-sharing, viewing them as overreach, leading to delays in tax reforms and uneven compliance.

The NFP’s progress, alongside governance and corruption diagnostics, tax evasion measures, and anti-corruption efforts, tops the agenda. Successful advancement could reinforce Pakistan’s fiscal credibility and pave the way for the release of approximately $1.2 billion (~$1 billion EFF + $200 million RSF/climate financing), subject to Executive Board approval. Delays risk stricter conditions or tranche hurdles, especially as talks also shape FY 2026-27 budget contours, including provincial finances. Market sentiment reflects caution, with the Pakistan Stock Exchange experiencing sharp declines ahead of the mission.