• Additional taxes, spending cuts planned to offset revenue shortfalls
• Govt commits to raising federal excise duty on fertilisers, pesticides
• FED to be introduced on sugary items; goods to be shifted to 18pc GST
• Expenditure cuts pledged if National Tariff Policy leads to revenue losses
ISLAMABAD: Having missed a total of 11 performance indicators under its IMF programme, the government has agreed to 11 new targets, including additional tax measures and expenditure cuts from early next month, to make up for rising revenue shortfalls and keep the $7 billion Extended Fund Facility (EFF) on track.
Commitment to the new or revised structural benchmarks, together with completion of two “prior actions”, enabled the conclusion of a staff-level agreement on the second review of the EFF and its approval by the IMF Executive Board for the disbursement of about $1.2bn, reveal fresh documents released by the Fund on Thursday.
The government confirmed at the outset that it estimated a shortfall from the underperformance of the captive power levy of Rs104bn, which it said would be covered by a reduction in power subsidies made possible through lower circular debt accumulation relative to budget estimates.
The Federal Board of Revenue (FBR) has already missed its collection target by about Rs430bn in the first five months of FY26.
“Should FBR’s revenues continue to fall short of expectations in the second quarter of FY26 (end of current month), and if other tax revenues are insufficient to bridge the gap, we will — in consultation with IMF staff — increase federal excise duty (FED) on fertilisers and pesticides by five percentage points, introduce FED on high-value sugary items, and move items from the 8th GST schedule to the general GST regime,” Finance Minister Muhammad Aurangzeb assured the Fund, implying full 18pc GST on those items.
He further committed that “if by the end of the second quarter of FY26 there is a revenue shortfall due to the implementation of the National Tariff Policy, we will postpone an equivalent amount of expenditure until the last quarter of FY26”.
Pakistan has also sought waivers for already missed targets in terms of performance criteria, structural benchmarks and indicators. The documents confirm that publication of a governance and corruption assessment report was set as a “prior action” for the latest $1.2bn disbursement to the State Bank of Pakistan, while another prior action related to recapitalisation measures for a weak bank.
In all, the authorities missed one out of six qualitative performance criteria, five structural benchmarks and four indicative targets — some of which were subsequently met after the original deadlines or extended.
The waivers pertain to non-observance of the end-June quantitative performance criterion (QPC) on Benazir Income Support Programme (BISP) spending, and a modification of three end-December QPCs: the ceiling on the general government primary budget deficit, the floor on the number of new tax returns (to account for seasonality) in line with the agreed FY26 primary surplus, and the BISP floor on targeted cash transfers.
Under the roadmap agreed with the Fund, the FBR will complete all actions required to fully implement at least three priority areas by the end of March 2026, including any necessary subordinate legislation, staff hiring and allocation, and initial KPI reporting.
The government has also committed to publish an initial study by the end of June 2026 assessing the fiscal costs and effectiveness of incentives for all existing Special Economic Zones (SEZs) and Export Processing Zones (EPZs), and to phase out all such incentives by 2035.
A Tax Policy Office has been created and will now handle all tax policy functions, including the development and publication of a medium-term tax reform strategy by the end of December 2026. The new strategy is intended to reduce reliance on ad hoc revenue measures and ensure revenue-neutral reforms that deliver sustained growth in tax receipts over the medium term.
Provinces have pledged to realise the full potential of agriculture income tax by fully operationalising information-sharing between the FBR and provincial tax authorities, and by ensuring that all services — except for a limited list of exemptions — are subject to GST.
The authorities will also conduct a comprehensive study of bottlenecks in the local currency bond market and publish an action plan to address identified weaknesses by the end of September 2026. They have further undertaken to strengthen efforts to make formal channels more attractive than the hawala market, without resorting to fiscal incentives. To this end, the SBP plans to conduct a comprehensive assessment of remittance costs by the end of May 2026 to improve cross-border payments.
At the same time, the authorities will seek to deepen the foreign exchange market, including through greater reliance on interbank trading and exchange rate flexibility, to support external sustainability.
On the power sector, the government has promised to complete the bidding process for the first round of privatisation of three distribution companies (Discos) early in 2026 and to move ahead with the rest.
It has committed to completing the preconditions for the privatisation of Hyderabad Electric Supply Company (Hesco) and Sukkur Electric Power Company (Sepco) by the end of December 2026. The authorities also plan to advance the privatisation of public generation companies, finalise transmission network restructuring and launch a wholesale electricity market.
Following amendments to the asset declaration framework, preparations are underway to publish, by the end of December 2026, the asset declarations of high-level federal civil servants on a government website. The framework will also extend to high-level provincial officials and allow banks full access to their declarations.
Based on an institutional-level risk assessment, the National Accountability Bureau (NAB) will lead and coordinate action plans to mitigate vulnerabilities in the 10 agencies identified as having the highest risks by the end of October 2026.
Amendments to most of the nine statutory state-owned enterprise (SOE) laws are expected to be submitted to the National Assembly before the end of August 2026. In parallel, the government is moving to amend the Sovereign Wealth Fund (SWF) law by the end of March 2026 to clarify its mandate, ensure transparent and competitive divestment and procurement procedures, introduce fiscal safeguards, and subject SWF-owned SOEs to the SOE law. Operationalisation of the SWF will remain on hold until these amendments are adopted.
Published in Dawn, December 12th, 2025
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