Pakistan is preparing to request greater flexibility and a softer approach from the International Monetary Fund (IMF) during the remaining period of its loan program, as economic pressures resurface and growth remains sluggish.
Prime Minister Shehbaz Sharif is set to raise the issue during his meeting with the IMF’s Managing Director on January 21 on the sidelines of the World Economic Forum in Davos.
According to a national daily, Pakistan will request renegotiation of certain conditions under the $7 billion Extended Fund Facility (EFF) and the $1.4 billion Resilience and Sustainability Facility (RSF), which are set to run until September 2027.
The government is seeking breathing space for the 2026-27 federal budget, particularly on fiscal targets, taxation and energy pricing, to revive economic activity and support growth.
A senior official said Pakistan wants the IMF’s top management to support a more lenient budgetary and fiscal framework for the next financial year.
The government has already formed a high-level committee, led by Deputy Prime Minister Ishaq Dar, to prepare a long-term strategy to exit the IMF programme by 2027–28. The focus is on accelerating growth and investment from the next fiscal year.
Recent economic indicators, however, remain concerning. Foreign direct investment has fallen by 43 percent, while the current account has slipped from surplus into a $1.2 billion deficit during July-December. Officials fear the investment-to-GDP ratio could fall to its lowest level in Pakistan’s history by the end of the current fiscal year.
Despite this, the Ministry of Finance maintains that the economy is stabilising. Officials project GDP growth close to 4 percent, higher than the IMF’s earlier estimate of 3.25 to 3.5 percent following the 2025 floods.
The current account deficit for the full year is projected at $2.2 to $2.3 billion, with exports expected to remain around $32 billion and imports between $72 and $76 billion. Remittances are projected to reach $42 billion by June 2026.
On the fiscal side, the Federal Board of Revenue is struggling to meet its revised tax target. To compensate, the government has relied on higher petroleum levies to stay within IMF-agreed limits for the primary balance and fiscal deficit.
The IMF review mission is expected to visit Pakistan in late February or early March 2026 for the third review under the EFF, which will also finalise the framework for the 2026–27 budget.
Four major policy proposals are currently under discussion. The first is export-led growth, as the prime minister has expressed concern over the rising trade deficit.
The second focuses on boosting investment, with the Special Investment Facilitation Council tasked to attract domestic and foreign capital.
The third proposal seeks further reductions in electricity tariffs to improve industrial competitiveness. The government is also seeking IMF approval to cut the super tax on manufacturing, gradually reducing it to 5 percent over four years and abolishing it in the fifth year if a primary surplus is achieved.
Under the proposals, the income threshold for super tax on manufacturers would rise from Rs. 200 million to Rs. 500 million, while the 10 percent super tax threshold would increase from Rs. 500 million to Rs. 1.5 billion.
The fourth proposal involves using lower inflation to justify a cut in the policy rate, making credit cheaper for businesses. The government also wants banks to be given specific lending targets to expand credit to SMEs
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