Pakistan in Poor Shape Ahead of First IMF Review

Pakistan’s economic framework is out of balance as it prepares for the first review of its $7 billion bailout program with the International Monetary Fund (IMF). Key indicators like GDP growth and CPI inflation underperformed in the first quarter (July-September) with a projected Rs. 321 billion tax shortfall and an additional Rs. 100-200 billion non-tax revenue gap by December. This creates a fiscal shortfall of Rs. 500-600 billion, reported a national daily. With inflation easing, the Finance Ministry may lower the policy rate by 200 basis points on November 4 from 17.5 percent to 15.5 percent. A further cut could come in December if inflation continues declining. Nonetheless, the government is expected to cut its Public Sector Development Program (PSDP) down to Rs. 1,100 billion from Rs. 1,250 billion. Meanwhile, imports grew only 8 percent and large-scale manufacturing growth dropped to 1.3 percent. Real GDP growth was revised to 3 percent from the initial 3.5 percent target. FBR faces an additional Rs. 230 billion tax shortfall in the second quarter and has already missed its first-quarter target by Rs. 91 billion. The FBR’s fiscal year target is Rs. 12,913 billion, up from last year’s Rs. 9,299 trillion. Sales tax at the import stage saw an Rs. 147 billion shortfall, while income tax revenue rose due to increased return filers. Also, 2.9 million filers remain inactive. Efforts to address tax evasion include 190,000 potential evaders identified and initial notices sent to 5,000, with further enforcement measures expected. Still, this probably won’t be enough.