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### Executive summary, context, and program modalities
- Context and objectives
  - 2023–24 Stand-By Arrangement (SBA) supported restoration of economic stability, but vulnerabilities and structural challenges remain substantial.
  - New government continuing efforts on a multi-year home-grown reform program to achieve resilient and inclusive growth.
  - Program aims to:
    - reinforce policy credibility and entrench stability; and
    - accelerate structural reforms to strengthen public finances, improve provision of critical public services, and create a favorable environment for private-led growth.
- Key program modalities
  - Authorities requested a 37-month Extended Arrangement Under the Extended Fund Facility (EFF) in the amount of SDR 5,320 million (261.9 percent of quota, or around US$7 billion).
  - SDR 760 million available at program approval; remainder phased evenly over six semiannual reviews.
  - Program monitoring through quantitative performance criteria (QPCs), indicative targets (ITs), structural benchmarks (SBs), and semiannual reviews.

### Recent macro developments and selected indicators (under the 2023 SBA)
- Selected outcomes under the SBA
  - First primary surplus in twenty years: 0.9 percent of GDP (FY24).
  - Near doubling of reserves.
  - Initiation of sustained disinflation and resumption of official and some private inflows.
- Selected recent indicators
  - Growth: rebounded to around 2.4 percent (provisional estimates); agriculture +6.3 percent; industrial and services ~1 percent.
  - Inflation: decelerated to 9.6 percent in August (peaked at 38 percent in May 2023); core inflation slowed to 11.7 percent.
  - Policy rate: SBP lowered policy rate by 150 bps and 100 bps in June and July, respectively, to 19.5 percent.
  - External: current account deficit shrank to US$665 million in FY24 (compared to US$3.3 billion in FY23); gross reserves increased to US$9.4 billion at end-June 2024; rupee around 280 per US$.

### Core structural challenges and growth dynamics
- Core observations
  - Large part of the economy is uncompetitive, propped up by protection, subsidies, and tax concessions that undermined the tax base.
  - Protectionism, entry barriers, weak governance, and a difficult business environment depressed investment (investment notably lower than peers).
  - Repeated boom-bust cycles correlated with macro policies increased external financing needs and depleted buffers.
- Growth dynamics and human capital
  - Pakistan’s relative decline driven by low capital accumulation and productivity growth; per capita GDP (PPP) lagged peers by 2022 despite population rising from ~80 million (1980) to over 230 million (2022).
  - Insufficient investment in health and education; poverty around 40 percent.
  - Youth: ~35 percent of youth not in education, employment, or training; youth unemployment ~11 percent.
  - Child malnutrition: 38 percent of children under five exhibit stunting.

### Program fiscal strategy and tax reforms
- Overall fiscal objectives
  - Revenue-based fiscal consolidation and institutional reforms to strengthen fiscal framework, including federal-provincial fiscal relations.
  - Increase net tax revenues by 3 percentage points of GDP over the program; bring tax revenue to 13.7 percent of GDP (program target noted in text).
  - Achieve primary surplus of 2.0 percent of GDP by FY27 (and similar medium-term targets across documents).
- FY25 budget and selected measures
  - Underlying primary surplus target: PRs 1,177 billion (1.0 percent of GDP); budget passed on June 28, 2024.
  - Federal revenue-boosting measures totaling PRs 1,723 billion, including:
    - Enhancing direct taxes (PRs 240 billion) with multiple withholding tax rate increases and changes to capital gains and non-filer rates.
    - Increasing PIT and CIT yields (PRs 357 billion) including rationalizing rate slabs and eliminating certain exemptions.
    - Transforming sales tax (GST) (PRs 286 billion) with moves to tax most goods at the standard rate and reclassify 5 percent GST products to 10 percent by FY26.
    - Improving revenue administration (PRs 250 billion expected), expanding Tajir Doost and digital invoicing.
    - Expanding FED coverage and rates (PRs 413 billion), including a 5 percent FED on lubricants and an FY26 FED on pesticides and fertilizers (MEFP ¶6.a.v).
    - Rationalizing tariffs and withdrawing concessions (PRs 65 billion).
    - Miscellaneous compliance and valuation reforms (PRs 157 billion).
  - Contingent revenue measures specified to be triggered by shortfalls (multiple 1 percentage point withholding tax increases with stated monthly yields).
- Tax administration and compliance gap
  - Current compliance gap: 3.5 percent of GDP concentrated in retail (1.1 percent of GDP), transport (0.7 percent of GDP), and real estate (0.2 percent of GDP).
  - Key measures and SBs:
    - Implement compliance risk management framework in Islamabad, Karachi, Lahore (end-December 2024 SB).
    - Continue CIP to expand tax net and monitor via QPC on tax returns from new filers (MEFP ¶8.b).
    - Extend Tajir Doost to 36 additional cities (SRO by July 2024).
    - Implement digital invoicing and strengthen track-and-trace.

### Federal-provincial fiscal relations and National Fiscal Pact
- Provinces committed to deliver surpluses around 1 percent of GDP in FY 2025.
- Agreement to enter a National Fiscal Pact (end-September 2024 SB) to devolve specific federal spending responsibilities aligned with the 18th amendment (MEFP ¶8.d).
- Provinces to enhance own tax collection: agricultural income tax (FY25), sales tax on services (FY26), property tax (FY26).
- Dedicated committee chaired by Finance Minister to prepare actionable devolution items (end-September 2024 SB).

### Public Financial Management (PFM), transparency, and debt management
- PFM priorities and SBs
  - Publish quarterly reports comparing budget projections with execution; initiate budget one month earlier.
  - One-time PSDP review to prioritize and rationalize projects; publish project selection criteria and annual limit on new projects (end-January 2025 SB).
  - Consolidate TSA and better utilize cash balances in commercial banks.
- Spending transparency
  - Fully roll-out e-PADS to federal and provincial agencies; continue publishing beneficial ownership info of winning suppliers; conduct external audit (MEFP ¶8.g).
- Debt management
  - Diversify and expand investor base to reduce sovereign-bank nexus.
  - Sustain lengthening domestic maturities; IT on average time-to-maturity of domestic securities.
  - Assess National Saving Scheme (NSS) merits considering externalities on the financial sector and operational costs.
  - QPC on issuance of government guarantees to contain contingent liabilities.

### Monetary policy, exchange rate, and financial sector
- Monetary and FX policy stance
  - Authorities agreed to pursue a tight monetary policy stance and that the exchange rate must absorb pressures; limited depth of FX market is a concern.
  - Monetary policy should remain tight and data-dependent; recent policy rate reductions to 19.5 percent noted as cautious easing.
  - Priority: deepening financial system and addressing undercapitalized banks.
  - Maintain shortening period for repatriation of export proceeds given fragile external conditions.
- Financial sector stability and reforms
  - SBP safeguards assessment (Dec 2023) broadly sound; recommended strengthening internal control systems.
  - Bank recapitalization and resolution:
    - Wind-down plan for undercapitalized public bank (liquidation by end-December 2024).
    - Two undercapitalized private banks must recapitalize by end-October 2024 or face resolution (structural benchmark end-November 2024).
    - Microfinance: 6 out of 12 microfinance banks undercapitalized; engagement ongoing.
  - AML/CFT: National AML/CFT Authority established; SBP imposed nominal sanctions totaling PRs 242 million for TBML violations.

### Energy sector—challenges, targets, and reform actions
- Key challenges
  - Unreliable supply, high costs, distribution inefficiencies (DISCOs), guaranteed US$ returns to power producers, reluctance to adjust tariffs → large losses, arrears, circular debt (CD) spikes: power CD spiked over 2013–21; gas CD spiked over 2020–23.
- Tariff and subsidy metrics and FY25 plans
  - Budgeted FY25 power subsidy: PRs 1,229 billion (1.0 percent of GDP).
    - Tariff differential: PRs 663 billion.
    - Arrears payments of FATA and KE: PRs 174 billion.
    - Agricultural tubewells: PRs 10 billion.
    - CD stock payments via PHPL principal payments: PRs 24 billion.
    - Arrears payments to power producers: PRs 358 billion.
  - FY25 CD Management Plan (to be adopted by Cabinet in July 2024) expected to include CD stock and arrears payments of PRs 382 billion (0. 3 percent of GDP).
  - Gas tariff notification occurred on July 1, 2024 and next anticipated by February 15, 2025 (February 15, 2025 SB).
- Power sector reform actions (MEFP ¶21.c)
  - Improve distribution efficiencies via accelerating private sector participation (end-January 2025 SB).
  - Institutionalize anti-theft procedures; improve transmission policy and privatize inefficient generation companies; improve plant efficiencies; transition to a competitive electricity market.
  - Reduce capacity payments (account for approximately 60 percent of generation costs) by renegotiating PPAs.
- Gas sector reform actions (MEFP ¶22)
  - Eliminate captive power (end-January 2025 SB) so users transition to the electricity grid.
  - Further unification of pricing including weighted-average cost of gas pricing (WACOG); automatic notification of semiannual gas tariff determinations by OGRA.
  - Further refine gas CD data and monitoring.
- Coverage of CD stock and arrears (end-March 2024 / end-Jan 2024)
  - Power payment arrears (CD): PRs 2,794 billion (2.6 percent of GDP).
  - Gas payment arrears stock: PRs 2,083 billion (2.0 percent of GDP).

### SOE reform, privatization, trade, and governance
- SOE situation and commitments
  - SOE losses/support absorbed 8¾ percent of GDP in direct budget support (cumulative since 2016).
  - Government guaranteed loans as of end-December 2023: PRs 1,518 billion; total lending to SOEs by commercial banks: PRs 1,710 billion.
  - Progress: SOE Act and SOE Policy adopted; CMU established in 2023; amendments completed for four statutory SOEs (June 2024).
  - Targets and SBs:
    - Amend laws of remaining 12 statutory SOEs to align with SOE Act (end-June 2025 SB for another 10 SOEs); amend remaining two laws by end-September 2025.
    - Amend SWF Act (end-December 2024 SB) to ensure SWF-owned SOEs revert to SOE Act governance and to place SWF under governance safeguards.
    - Operationalize CMU further: publish SOE reports (first two published Dec 2023 and June 2024); adopt business plans and audited IFRS-compliant financial statements for largest SOEs by end-December 2024.
  - Privatization agenda: PIA privatization anticipated by end-August 2024; others include Roosevelt Hotel, First Women’s Bank, HBFC, DISCOs and GENCOs (¶24c).
- Trade, competitiveness, and openness (Box 1)
  - Pakistan’s export growth since 2000 ranked second to last among nine regional peers; Economic Complexity Index rank 85 as of 2022 (same as 2000).
  - High protection: around the 90th percentile of the Measurement of Aggregate Trade Restrictions index.
  - Diversification frontier identifies feasible proximate complex goods: glassware, paints, chemicals, special fabrics, medical instruments.
  - Policy recommendations: remove microeconomic distortions, foster competitively neutral environment, greater integration into global trade, avoid targeted "picking winners", remove fiscal incentives that distort allocation.

### Climate policy, adaptation, and mitigation
- Rationale and targets
  - Significant climate vulnerabilities; 2022 floods an example.
  - Analysis: additional ex-ante adaptation investment and associated efficiency of 1 percent of GDP per year would reduce negative growth impact of a natural disaster shock by one-third and reduce post-shock recovery time (SIP reference).
- Policy guidance and capacity building
  - Implement C-PIMA Action Plan (adopted December 2023) and Fund’s broader PIMA TA recommendations.
  - Develop climate scoring methodology for PSDP projects; integrate climate sensitivity into project planning and building codes; refine project appraisal methodology and green budget-tagging capacity (MEFP ¶31.a).
  - Establish Climate Finance Wing in Ministry of Climate Change; finalize National Climate Finance Strategy with World Bank; leverage BISP datasets for disaster social protection calibrations.
- Financing constraints
  - Even adaptation investment of 1 percent of GDP per year could be challenging despite fiscal improvements (¶15, 16).
  - World Bank estimate: annual climate investment needs through 2030 at equivalent to 10.7 percent of GDP (cited in text).
- Mitigation
  - NDC: unconditional and conditional targets of 15 and 50 percent reduction of projected emissions by 2030 respectively.
  - Envisioned mitigation policies: reforestation, greening energy mix, initial fuel taxation, voluntary carbon trading system under UNFCCC.
  - Authorities aligned with staff and emphasize mobilizing climate financing.

### Financing, program access, and external support
- Program access and financing commitments
  - Access set at 261.9 percent of quota (SDR 5,320 million, ~US$7 billion).
  - Program fully financed with firm commitments for first 12 months and good prospects thereafter.
  - Financing committed for FY25 includes US$16.8 billion of rollovers of existing short-term financing and US$2½ billion of additional commitments from China, Saudi Arabia, ADB and IsDB.
  - Loans from foreign commercial banks totaling US$6.6 billion renewed previously expected to continue to be rolled.
- Financing need and prospective sources (selected figures preserved exactly)
  - A. Financing gap: 4,014; 4,021; 3,024; 1,014; Total (FY25-28) 12,073
  - Underlying BoP Gap 2/: 638; 1,309; -1,754; -1,250; -1,057
  - Gross international reserves (+= accumulation): 3,376; 2,712; 4,779; 2,263; 13,130
  - B. IMF (prospective): 2,014; 2,021; 2,024; 1,014; 7,073
  - C. Residual Need / Other prospective financing (A-B) 3/: 2,000; 2,000; 1,000; 0; 5,000
  - Memorandum items (selected): Gross Reserves: 12,757; 15,469; 20,248; 22,511; months of imports: 2.1; 2.4; 3.0; 3.1; percent of ARA metric: 47; 55; 67; 72; IFI Budget Support: 800; 650; 650; 650; 2,750; ADB: 800; 650; 650; 650; 2,750; External Bond Issuance: 0; 0; 1,000; 2,000; 3,000; (Net) Commercial Bank borrowing 4/: 700; 700; 1,028; 847; 3,275
- Tabled balance of payments and reserves trajectories (selected)
  - End-period gross official reserves (millions of U.S. dollars; Table 3a memo): 7,274 (2018/19), 12,175 (2019/20), 17,297 (2020/21), 9,821 (2021/22), 4,455 (2022/23), 9,029 (2023/24), 9,381 (2024/25 Prog.), 12,757 (2025/26 Est.), 15,469 (2026/27), 20,248 (2027/28), 22,511 (2028/29), 25,356 (2029/30).
- IMF exposure and capacity to repay
  - Fund exposure would reach SDR 6,816 million by September 2024 (336 percent of quota) with purchases linked to request; peak exposure September 2027 at SDR 8,774 million (432 percent of quota; approximately 55 percent of projected gross reserves for FY27).
  - Exposure levels around double the average for recent EFFs; exceptionally high risks could jeopardize implementation and repayment capacity.

### Program monitoring, performance criteria, and structural conditionality
- Proposed schedule of reviews and purchases (Table 8; selected)
  - Approval of arrangement: September 25, 2024 — 760 SDRs — 37.4 percent of quota.
  - Semiannual reviews through September 15, 2027 — each review 760 SDRs — 37.4 percent.
  - Total: 5,320 SDRs — 261.9 percent of quota.
- Selected quantitative performance criteria (Table 1; FY2024/25 test dates and values)
  - Floor on net international reserves of the SBP (millions of U.S. dollars): end-Jun 2024: -12,349; end-Sep 2024: -12,150; end-Dec 2024: -12,050; end-Mar 2025: -10,200; end-Jun 2025: -8,650.
  - Ceiling on net domestic assets of the SBP (stock, billions of Pakistani rupees): end-Jun 2024: 15,542; end-Sep 2024: 15,044; end-Dec 2024: 15,211; end-Mar 2025: 15,179; end-Jun 2025: 15,820.
  - Ceiling on SBP's stock of net foreign currency swaps/forward position (negative, millions of U.S. dollars): end-Jun 2024: -3,450; end-Sep 2024: -3,250; end-Dec 2024: -3,000; end-Mar 2025: -2,750; end-Jun 2025: -2,500.
  - Ceiling on the general government primary budget deficit (cumulative, excl. grants, billions of Pakistani rupees): end-Jun 2024: -401; end-Sep 2024: -198; end-Dec 2024: -2,877; end-Mar 2025: -2,707; end-Jun 2025: -2,435.
  - Cumulative floor on targeted cash transfers spending (BISP) (billions of Pakistani rupees): end-Jun 2024: 472; end-Sep 2024: 101; end-Dec 2024: 235; end-Mar 2025: 415; end-Jun 2025: 599.
  - Cumulative floor on the number of new tax returns from new filers (thousands): end-Jun 2024: 142; end-Sep 2024: 752; end-Dec 2024: 253; end-Mar 2025: 3,000; end-Jun 2025: 450.
- Structural benchmarks (selected timing and objectives)
  - National Fiscal Pact: end-September 2024.
  - Full implementation of compliance risk management measures in LTUs (Islamabad, Karachi, Lahore): end-December 2024.
  - Amend SWF Act and other legislation to ensure SWF under SOE Act and safeguards: end-December 2024.
  - Amend laws for 10 additional statutory SOEs: end-June 2025.
  - Introduce a 5 percent FED on fertilizer and pesticide: end-June 2025.
  - Eliminate captive power usage in the gas sector: end-January 2025.
  - Publish Governance and Corruption Diagnostic Assessment: end-July 2025.

### Risk assessment, DSA and staff appraisal
- Risk balance and major risks
  - Balance of risks tilted to the downside.
  - Major risks: slippages/backtracking on policy implementation (High likelihood, High impact), deterioration in security conditions (Medium likelihood, Medium/High impact), commodity price volatility (High likelihood, High impact), intensification of regional conflict(s) (High likelihood, High impact), abrupt global slowdown (Medium likelihood), monetary policy miscalibration and systemic financial instability (Medium likelihood).
- DSA and risk metrics (selected)
  - Public debt path (percent of GDP): 2023: 78.6; 2024: 70.0; 2025: 72.1; 2026: 70.4; 2027: 67.8; 2028: 64.3; 2029: 61.0; 2030: 58.9; 2031: 57.9; 2032: 57.0; 2033: 56.1.
  - Gross financing needs (GFN) (percent of GDP): 23.5 (2023); 22.7 (2024); 22.5 (2025); 19.0 (2026); 17.0 (2027); 15.3 (2028); 19.3 (2029); 16.4 (2030).
  - GFN financeability index (GFI): 27.9 → Risk signal: High.
  - Debt Fanchart index (DFI): 1.6 → Risk signal: Moderate.
  - Staff commentary: baseline assesses public debt sustainable under steadfast EFF implementation; elevated gross financing needs and low buffers pose high risks; timely disbursements from partners critical.
- Staff appraisal summary and policy recommendations
  - Continue and deepen revenue-based fiscal consolidation and tax base broadening, including provincial AIT reform and elimination of privileges/exemptions.
  - Reorganize federal-provincial fiscal relations via National Fiscal Pact; provinces to meet primary surplus targets and implement tax reforms.
  - Strengthen PFM and PSDP project selection and management; consolidate TSA and improve cash management.
  - Monetary policy: remain tight and data-dependent until core inflation and expectations are re-anchored; allow exchange rate to adjust to absorb shocks and rebuild reserves; refrain from restrictions on current account payments.
  - Financial stability: legal reforms for crisis management, address undercapitalized banks, effective AML/CFT.
  - Energy sector: timely tariff adjustments plus structural reforms to distribution, generation, and PPAs.
  - Structural reforms: scale back distortive industrial policies, strengthen SOE governance, privatize commercially viable SOEs, improve business environment, and strengthen anti-corruption institutions.
  - Climate resilience: implement C-PIMA and PIMA agendas, develop climate finance strategy, and mobilize external financing.

### Program monitoring, data provision, and reporting obligations
- Authorities’ commitments on data and reporting
  - Provide all needed data to the IMF consistent with Article VIII, Section 5.
  - Key agencies supplying data: SBP, MOF, FBR, PBS, Ministry of Energy, BISP, and others.
  - Extensive reporting timetables specified (daily/weekly/monthly/quarterly) for SBP, MOF, FBR, PBS, Ministries (energy, petroleum, water and power), BISP, PPP Authority and SOEs (selected items summarized in monitoring tables).
- TMU and program exchange rates
  - Program exchange rate: 278.3412 rupee per one U.S. dollar (as of June 28, 2024).
  - Adjustor mechanisms for NIR and NDA ceilings tied to cumulative excess/shortfall of specified external cash inflows.

_Italic: Source — EXECUTIVE SUMMARY and selected chapters and annexes, 1pakea2024003-print-pdf (provided content)._

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- While the 2023–24 Stand-By Arrangement (SBA) supported the restoration of economic stability, Pakistan’s vulnerabilities and structural challenges remain substantial.
- The new government formed after the February elections has continued efforts to strengthen economic conditions and is embarking on a multi-year home-grown reform program to achieve resilient and inclusive economic growth.

### Program objectives
- The program aims to:
  - reinforce the authorities’ efforts to bolster policy credibility and entrench stability; and
  - accelerate structural reforms to strengthen public finances, improve the provision of critical public services, and create a favorable environment for private-led growth.
- Key policies include:
  - (i) revenue-based fiscal consolidation and institutional reforms to strengthen the fiscal framework, including the federal-provincial fiscal relations;
  - (ii) appropriate monetary policy to bring down inflation and exchange rate flexibility to aid the rebuilding of reserves;
  - (iii) measures to restore the energy sector’s viability, including the timely implementation of energy tariff adjustments;
  - (iv) reforms to state-owned enterprise (SOE) governance, deregulation of product markets, governance and anti-corruption reforms, removal of subsidies and relaxation of trade barriers which create resource misallocation; and
  - (v) efforts to strengthen climate resilience.

### Program modalities
- The authorities have requested a 37-month Extended Arrangement Under the Extended Fund Facility (EFF) in the amount of SDR 5,320 million (261.9 percent of quota, or around US$7 billion).
- The authorities believe that their commitment to sound policies can catalyze new multilateral and bilateral financing and restore market access.

### Article IV discussions
- Discussions focused on Pakistan’s medium-term prospects, which helped inform policies and define program objectives.
- They were complemented by the ex-post peer review assessment that drew lessons from Pakistan’s recent history of Fund-supported programs.

*Discussions were held in Islamabad during May 13–23, 2024. The staff team comprised Nathan Porter (head); Tom Best, Jan Möller, Jason Weiss (all MCD); Julieth Pico Mejía (FAD); Gonzalo Huertas (SPR); Emre Balibek (MCM); Jonathan Pampolina (LEG); Esther Perez Ruiz (Resident Representative); and Zafar Hayat and Saihan Mohammad (both Islamabad office). Geerten Michielse, Parvina Rakhimova, and Graham Whyte (all FAD) assisted the team remotely on tax reform and revenue administration discussions. Laura Torrent (MCD) provided research assistance and Nataliya Bondar (MCD) document management assistance. Mr. Dogar (OED) also joined the discussions.*

### Recent developments (under the 2023 SBA)
- The SBA began at a very difficult juncture, with Pakistan facing large external financing needs, depleted reserves, and soaring country risk premia.
- Strong and consistent policy implementation under the SBA, including the first primary surplus in twenty years (0.9 percent of GDP), led to:
  - near doubling of reserves;
  - initiation of sustained disinflation; and
  - resumption of official and some private inflows, which helped to stabilize the economy.
- Selected recent indicators:
  - Growth: rebounded to around 2.4 percent (provisional estimates), driven by agriculture (+6.3 percent); industrial and services sectors recorded growth of about 1 percent.
  - Inflation: decelerated to 9.6 percent in August (after peaking at 38 percent in May 2023); core inflation slowed to 11.7 percent. The SBP lowered its policy rate by 150 bps and 100 bps in June and July, respectively, to 19.5 percent.
  - External: current account deficit shrank to US$665 million in FY24 (compared to US$3.3 billion in FY23); external dividend payments increased sharply in May 2024 to US$918 million, and remaining backlog was cleared in June. Gross reserves increased to US$9.4 billion at end-June 2024. The rupee remained stable at around 280 per US$. The external position in FY23 was broadly in line with the level implied by medium-term fundamentals and desirable policies.

### Pakistan’s protracted structural challenges
- Core observations:
  - A large part of the economy is uncompetitive, propped up by protection, subsidies, and tax concessions that have undermined the tax base.
  - Protectionism and entry barriers have undermined competition, leading to inefficiency and low productivity.
  - Weak governance and a difficult business environment have hindered investment, which remains significantly lower than peer countries.
  - Repeated boom-bust cycles, correlated with macro policies, have increased external financing needs and depleted buffers.
- Growth dynamics:
  - Pakistan’s relative decline in growth rates primarily reflects low capital accumulation and productivity growth.
  - In 1980 Pakistan had higher per capita GDP (PPP terms) than many regional peers; by 2022 per capita GDP had lagged peers despite population rising from about 80 million in 1980 to over 230 million in 2022.
  - Declining contributions from capital and total factor productivity; investment rates have declined across decades.
  - Weak investment in human capital resulted in limited contribution from “labor quality.”
- Social sector and inclusion gaps:
  - Insufficient investment in health and education; spending has steadily declined relative to GDP.
  - Poverty is around 40 percent.
  - Approximately 35 percent of Pakistani youth are not in education, employment, or training; youth unemployment rate is approximately 11 percent; and 38 percent of Pakistani children under five years of age exhibit stunting.
- Distortions from state support:
  - Subsidies, favorable taxation, price setting, and high tariff and non-tariff protection have tilted the playing field toward selected groups/sectors.
  - Tax exemptions and concessions for real estate, agriculture, manufacturing, and energy, and proliferation of Special Economic Zones (SEZs), have provided non-transparent support.
  - Despite support, the business sector has failed to become an engine of growth; incentives weakened competition and trapped resources in chronically inefficient industries.
- Resource misallocation and competitiveness:
  - Persistent dispersion in productivity across sectors, with one of the smallest declines in the share of agricultural employment among EMDCs since 1990.
  - Low investment, protectionism, and weak competition harmed innovation in tradables production and resulted in declining economic complexity.
- Climate and infrastructure vulnerability:
  - Inadequate investment in infrastructure has left Pakistan vulnerable to climate change, with the 2022 floods as a recent example.
  - Building resilience requires greater investment in adaptation, reduction of subsidies that incentivize inefficient use of natural resources, and strong governance to ensure effective deployment of public resources for adaptation and ex post disaster assistance.
- Lessons from past reforms:
  - Repeated reform efforts, including under Fund-supported programs, were generally short lived and often reversed.
  - The short SBA in 2023 restored macro stability but was not designed to tackle deeper structural challenges that require a multiyear effort.
  - Previous programs suffered inconsistent implementation after some stability was achieved, limiting structural transformation.
  - The current program is designed around lessons from past experience, including timing, scope, and sequence of conditionality and institutional reforms, and the need for strong ownership.

*Source: EXECUTIVE SUMMARY, 1pakea2024003-print-pdf*

### Box 1. Pakistan’s Trade, Competitiveness, and Openness

### Box 1. Pakistan’s Trade, Competitiveness, and Openness

### Trade performance and protection
- Pakistan’s integration to world trade has underperformed over the past two decades, holding back economic development.
- Compared to nine other regional peers, the country’s export growth since 2000 has been second to last, with sales to the world particularly stagnant during the 2010s.
- The country’s trade restrictions (including exchange measures, tariff and nontariff barriers, restrictions to payments, etc.) have placed it consistently at or around the 90th percentile of the highest Measurement of Aggregate Trade Restrictions index (Estefania-Flores and others, 2022).
- This high level of protection has not helped improve, and likely undermined, Pakistan’s competitiveness.

### Export structure and economic complexity
- Pakistan has struggled to develop more sophisticated export goods, and the share of knowledge-intensive exports remains low.
- As of 2022, Pakistan ranked 85th in the Economic Complexity Index, the same rank it held in the year 2000 (Observatory of Economic Complexity, 2024).
- The export basket is strongly biased towards agriculture and textiles, and the country has struggled to reallocate resources towards more technologically complex products.

### Microeconomic distortions and barriers to reallocation
- Reallocation toward higher-complexity sectors is held back by existing microeconomic distortions, including:
  - public procurement of agricultural goods,
  - price controls on raw inputs,
  - fiscal and financial incentives for low productivity sectors.
- Targeted policies that pick winners risk perpetuating misallocation; a competitively neutral business environment is emphasized.

### Diversification frontier and feasible complex products
- The diversification frontier analysis shows the relationship between a product’s technological complexity and its “relatedness” to Pakistan’s current export basket.
- There are a number of complex goods within likely technological proximity to Pakistan’s current knowhow, including:
  - glassware,
  - paints,
  - chemicals,
  - special fabrics,
  - medical instruments.
- Note: The size of each scatterpoint in the diversification frontier indicates a product’s relative trade value.

### Policy recommendations to raise competitiveness and productivity
- Remove microeconomic distortions and foster a more competitively neutral business environment to develop more technologically complex sectors and foster productivity gains.
- Greater integration to global trade and easier access to imports, both as intermediate inputs for production and as final goods to promote domestic competition, will increase competition and further enhance productivity.
- Avoid targeted policies aimed at picking winners; instead ensure a level playing field for business.
- Remove fiscal incentives that distort resource allocation, including tax exemptions or subsidized credit, to reduce misallocation and promote price discovery across firms.

*Source: Box 1. Pakistan’s Trade, Competitiveness, and Openness (from the supplied IMF content).*

### 16.      Broad-based reforms will continue beyond FY25 to further strengthen public finances.

### 16.      Broad-based reforms will continue beyond FY25 to further strengthen public finances.

### Tax policy reforms
- Focus: simplifying revenue collection and broadening the tax base while ensuring progressivity.
- Key measures:
  - Move all products at 5 percent rate of GST to the 10 percent category by FY26 (MEFP ¶8.a).
  - Efforts to transform the GST into a broad-based VAT.
  - Introduce in FY26 budget an FED of 5 percent on pesticides, and enhance the FED on fertilizers by 5 percentage points (MEFP ¶6.a.v).
  - PIT reforms to eliminate further tax credits and deductions; special regimes for exporters and construction and developers have come to an end.
  - Any new exemption will be granted based on a cost-benefit assessment (MEFP ¶8.a).
  - Moves to ensure equivalent taxation of all sources of income (MEFP ¶8.a).
  - Introduction of a single turnover-based registration threshold for both income and GST registration to all businesses (MEFP ¶8.a).

### Strengthening tax administration
- Objective: address a current 3.5 percent of GDP compliance gap concentrated in retail, transport, and real estate.
- Compliance gap breakdown:
  - Retail: 1.1 percent of GDP
  - Transport: 0.7 percent of GDP
  - Real estate: 0.2 percent of GDP
- Key measures:
  - Fully implement the compliance risk management framework in large markets (Islamabad, Karachi, Lahore), including use of third-party data, cross-check, and data analytics (end-December 2024 SB) (MEFP ¶8.b).
  - Continue the compliance improvement plan (CIP) to expand the tax net, targeting professionals and small businesses; monitor performance via a QPC setting a floor on tax returns from new filers identified through the CIP (MEFP ¶8.b).
  - Extend the Tajir Doost scheme to an additional 36 cities; performance monitored via an IT (MEFP ¶8.b).
  - Implement digital invoicing (MEFP ¶8.b).
  - Enhance the track-and-trace system, with control and deterrent actions to prevent smuggling and counterfeiting (MEFP ¶8.b).
  - Establish a Tax Policy Office under the Minister to improve tax policy analysis and allow the FBR to focus on revenue collection (MEFP ¶8.c).

### Federal-provincial fiscal relations
- Provinces committed to contributing more to strengthening public finances.
- Agreed program fiscal strategy includes provinces delivering surpluses of around 1 percent of GDP in FY 2025.
- Agreement to enter a National Fiscal Pact (end-September 2024 SB) to devolve specific federal spending responsibilities to provinces, in line with the 18th constitutional amendment (MEFP ¶8.d).
- Provinces to enhance own tax-collection efforts, including:
  - Agricultural income tax (FY25)
  - Sales tax on services (FY26)
  - Property tax (FY26)
- A dedicated committee, chaired by the Finance Minister, will prepare a comprehensive report on actionable devolution items with a specific implementation timeline (MEFP ¶6.d) (end-September 2024 SB).
- Note: Strong implementation of the National Fiscal Pact is essential for sustainability of fiscal consolidation.

### Public Financial Management (PFM)
- Goals: strengthen budgetary discipline, enhance transparency, build confidence in budgetary spending, improve PSDP management.
- Budget process improvements:
  - Produce and publish quarterly reports comparing budget projections with actual execution.
  - Initiate the budget process one month earlier to allow sufficient time for discussions with line ministries.
- PSDP portfolio management:
  - Conduct a one-time review to prioritize and rationalize ongoing and approved PSDP projects.
  - Develop and publish criteria for project selection, including an annual limit on the total size of new projects entering the PSDP portfolio (end-January 2025 SB).
  - Integrate current expenditures associated with new projects into the decision-making process.
- Liquidity and debt management:
  - Continue efforts to consolidate the TSA and implement measures to better utilize cash balances accumulating in commercial banks (MEFP ¶8.f.iii).

### Spending transparency
- Leverage digitalization (e-Pakistan Acquisition and Disposal System) to ensure high transparency and prevent misuse and corruption.
- Recommended actions:
  - Fully roll-out e-PADs to all federal and provincial agencies.
  - Continue publishing beneficial ownership information of winning suppliers.
  - Conduct an external audit in the next fiscal year (MEFP ¶8.g).

### Debt management
- Focus: diversification and expansion of the investor base to reduce the sovereign-bank nexus.
- Sustain recent progress in lengthening domestic maturities; aided by an IT on the average time-to-maturity of domestic securities.
- Improve market communication about issuance strategy and consolidate fragmented information.
- Comprehensively assess the merits of the National Saving Scheme (NSS) considering externalities on the financial sector and operational costs.
- A QPC on issuance of government guarantees, including those related to SOEs’ commodity operations, will help contain fiscal risks from contingent liabilities.

### Authorities’ views on fiscal reforms
- Authorities agree with the path of fiscal adjustment and the need for related structural reforms.
- Emphasize revenue-enhancing strategies given expenditure rigidity and need to expand social spending.
- Support implementing tax administration measures to reduce the compliance gap and expand the tax base, alongside enforcement measures.
- Agree on rationalizing PSDP size, improving PSDP project management, and expanding e-PADS training coverage to all relevant federal agencies.
- Stress importance of close coordination with provinces and continuation of expenditure devolution; provinces must enhance own revenue collection efforts.

*Source: IMF staff summary of program documentation*

### 26.      The authorities agreed on the need to pursue a tight monetary policy stance and that

### 1pakea2024003-print-pdf - 26.      The authorities agreed on the need to pursue a tight monetary policy stance and that

### Monetary policy and exchange rate
- Authorities agreed on the need to pursue a tight monetary policy stance and that the exchange rate must absorb any emerging pressures.
- Concern noted: limited depth of the FX market could propagate and exacerbate one-way movements in the exchange rate.
- While achievements were noted in bringing down inflation over the past year, authorities recognized risks ahead and the need for a cautious approach in easing monetary policy.
- Authorities acknowledged complementarity between an appropriate fiscal stance and the central bank’s ability to pursue its price stability objective.
- Priority: deepening the financial system and addressing undercapitalized banks.
- Authorities viewed maintaining the shortening of the period for repatriation of export proceeds as appropriate given still-fragile external conditions.

### Energy sector policies — challenges and recent developments
- Structural problems: unreliable energy supply, high and unpredictable costs, distribution inefficiencies (especially DISCOs), guaranteed US$ returns to power producers, reluctance to adjust tariffs in line with costs.
- Consequences: large losses, accumulation of arrears, cross-subsidization among consumer groups, inadequate maintenance, declining service, undercollection, need for higher tariffs.
- Gas-specific issue: longstanding underpricing amid rapid depletion of indigenous natural gas led to subsidizing demand for more expensive imported RLNG.
- Circular debt (CD) spike: power CD spiked over 2013–21; gas CD spiked over 2020–23.
- Tariff adjustments: authorities began significantly adjusting tariffs in line with costs beginning in 2021 (electricity) and early 2023 (gas).
- Power subsidies: sizeable power subsidies of around 1 percent of GDP in FY24 helped broadly stabilize nominal CD flow in 2023-24.
- Warning: large persistent power subsidies are not a viable ongoing tool; broad structural reforms are required to reduce costs and tackle theft, captive power, and inefficiencies (especially DISCOs).

### Energy sector policies — policy measures and targets
- Continued timely energy tariff adjustments consistent with cost recovery, in parallel with broader reforms, are needed to prevent further CD accumulation.
- Power sector requirements:
  - Annual rebasing notification in full by the Power Ministry at a rate consistent with cost recovery, which occurred on July 14, 2024.
  - Timely implementation of quarter tariff adjustments and monthly fuel cost adjustments.
  - Budgeted FY25 power subsidy of PRs 1,229 billion (1.0 percent of GDP) would minimize net CD flow over the fiscal year.
  - The FY25 CD Management Plan (to be adopted by Cabinet in July 2024) expected to include CD stock and arrears payments of PRs 382 billion (0. 3 percent of GDP) to compensate for anticipated positive CD flow.
- Gas sector requirements:
  - Notification by the Petroleum Ministry of semiannual tariff adjustments, in line with revenue requirements and continuing to include the cost of imported RLNG, which occurred on July 1, 2024 and is anticipated by February 15, 2025 (February 15, 2025 SB).
- Critical preservation: both power and gas tariff adjustments must preserve current progressive tariff structures to protect vulnerable household consumers.

### Energy sector reforms — specific reform actions
- Power reforms (MEFP ¶21.c) to reduce costs and CD:
  - Improve distribution efficiencies via accelerating private sector participation (end-January 2025 SB).
  - Institutionalize anti-theft procedures to reduce losses.
  - Improve policy and regulatory framework of the transmission system.
  - Privatize inefficient generation companies.
  - Improve power plant efficiencies.
  - Complete transition to a competitive electricity market.
  - Reduce capacity payments by renegotiating power purchase arrangements (which account for approximately 60 percent of generation costs).
- Gas reforms (MEFP ¶22):
  - Eliminate captive power (end-January 2025 SB) so users transition to the electricity grid, channeling scarce gas to more efficient gas-based power generators and reducing power generation costs.
  - Further unification of pricing, including by further implementing the weighted-average cost of gas pricing (WACOG).
  - Introduce automatic notification of semiannual gas tariff determinations by the Oil and Gas Regulatory Authority (OGRA).
  - Further refine CD data to improve monitoring and analysis.

### Authorities’ views on energy
- Authorities recognize urgency of implementing cost-reducing reforms and are committed to implementing scheduled tariff increases to prevent further CD flow.
- Acknowledged tension in tariff structures where certain non-residential categories cross-subsidize lower-slab households; agreed cross-subsidies should be phased out when they can be shifted to direct cash transfers (¶19) in the medium term (pending fiscal space).
- Agreed progressive tariff structures should be maintained until alternative measures (like direct cash transfers) are feasible.

### Structural policies — SOE, agriculture, trade, and data
- SOE sector:
  - SOE losses and support absorb 8¾ percent of GDP in direct budget support (cumulative since 2016).
  - As of end-December 2023 the government guaranteed loans amounting to PRs 1,518 billion, mostly to SOEs, with total lending to SOEs by commercial banks reaching PRs 1,710 billion.
  - Progress: adoption of the SOE Act and SOE Policy, establishment of the Central Monitoring Unit (CMU) in 2023, and June 2024 completion of amendments to laws of four selected statutory SOEs.
  - Policy focus: amend laws of remaining 12 statutory SOEs to align with SOE Act (end-June 2025 SB for another 10 SOEs); amend the 2023 Sovereign Wealth Fund (SWF) Act (end-December 2024 SB) to ensure SOEs under SWF revert to SOE Act governance and that SWF comes under governance mechanisms and safeguards (MEFP ¶24b).
  - Priorities: implement new SOE legal framework with Asian Development Bank support, complete privatization and restructuring plans (MEFP ¶24.c), fully operationalize CMU (first two SOE reports published December 2023 and June 2024) (MEFP ¶24.d).
  - Note: The SWF has not been made active; the SWF Act transferred seven SOEs to the SWF and exempted all SOEs under its control from the SOE Act.
- Agriculture:
  - Long-standing government interventions in agricultural commodities created distortions; interventions should be discontinued (MEFP ¶25).
  - Any purchases by SOEs or provincial food departments should be solely for narrowly defined national food security, not quasi-fiscal social policies.
- Trade:
  - Further efforts to remove trade barriers urgently needed (MEFP ¶27).
  - First National Tariff Policy (2019-24) reduced tariff schedule complexity and introduced duty-free access for many imported inputs.
  - Next phase (2025–29) should further reduce complexity, avoid using tariffs to promote industrialization or protect non-competitive sectors, discontinue export subsidies and local content requirements, reduce trade-weighted average tariffs, and simplify import/export documentation.
- Data and statistics:
  - Data provided to the Fund broadly adequate for surveillance in most areas, but weaknesses remain in National Accounts (NA) and Government Finance Statistics (GFS) (Annex VII).
  - Issues: shortcomings in source data for sectors accounting for around a third of GDP; granularity and reliability issues in GFS.
  - Authorities prioritizing addressing weaknesses (MEFP ¶30), supported by Fund TA on GFS and a new PPI index; Pakistan Bureau of Statistics to begin fieldwork for four major surveys ahead of upcoming NA rebasing to FY26.

### Structural policies — governance, anti-corruption, and administration
- Governance and anti-corruption:
  - Robust governance and anti-corruption institutions are critical (MEFP ¶26).
  - Authorities requested IMF capacity development support for a Governance and Corruption Diagnostic Assessment and committed to publishing the report, including an action plan (end-July 2025 SB).
  - Authorities will formalize intent to publish full review report of compliance with the UN Convention against Corruption through regulations to be issued by end-September 2024, once review process is completed.
  - To address impunity and weak investigative capacities, authorities will enhance independence and effectiveness of the National Accountability Bureau (NAB), following expected Supreme Court ruling on the agency’s organic law.
  - Asset declarations of high-level public officials (similar to members of parliament) will be made publicly accessible through legislative amendments (end-February 2025 SB), subject to safeguards of limited personal data; the asset declaration system will be digitalized through the FBR and subject to risk-based verification by the Establishment Division.
- Authorities’ stance:
  - Broad alignment on SOE reform priorities and simplification of import/export processes.
  - Concerns expressed about potential impact of reducing customs duties on vulnerable manufacturing sectors (including the automotive industry).
  - Concerns about security and harassment risks in making asset declarations publicly available; distinctions drawn with elected members of parliament.

### Climate policies — adaptation, financing, and implementation
- Rationale:
  - Adaptation investment is critical given Pakistan’s significant climate vulnerabilities (¶8); mitigation supports global greenhouse gas mitigation efforts.
  - Additional early adaptation investment, efficiently implemented, would significantly moderate and shorten negative effects of future climate shocks (Box 4).
- Policy guidance:
  - Focus climate efforts on resilience and adaptation.
  - Analysis shows additional ex-ante adaptation investment and associated efficiency of 1 percent of GDP per year would reduce negative growth impact of a natural disaster shock by one-third and reduce post-shock recovery time (see accompanying SIP).
  - Adaptation efforts should focus on implementing the C-PIMA Action Plan (adopted December 2023) to incorporate adaptation-focused investments into overall investment strategy.
  - Progress made: development of a climate scoring methodology of PSDP projects aligned with National Adaptation Plan; incorporation of climate sensitivity into project planning; incorporation of climate into building codes; progress on project appraisal methodology and green budget-tagging capacity (MEFP ¶31.a).
  - To maximize impact, complete implementation of Fund’s broader PIMA TA recommendations in parallel.
  - Leverage BISP datasets to calibrate social protection disbursements in event of disaster and implement National Disaster Risk Financing Strategy.
  - Ensure robust transparency and accountability safeguards in climate financing to prevent misuse or corruption.
- Financing constraints:
  - Greater adaptation investment requires greater fiscal space and enhanced climate financing.
  - Even adaptation investment of 1 percent of GDP per year could be challenging despite efforts to raise tax revenues and improve fiscal performance (¶15, 16).
  - Finalizing the National Climate Finance Strategy with the World Bank is crucial to mobilizing financing.
  - Institutional steps: establishment of a Climate Finance Wing in the Ministry of Climate Change; SBP’s development of tools to account for climate shocks on financial stability (MEFP ¶31.b).

*Source: PAKISTAN — INTERNATIONAL MONETARY FUND*

### 41.      Pakistan’s mitigation targets are ambitious. Under the UNFCCC framework, Pakistan’s

### Pakistan’s mitigation targets are ambitious. Under the UNFCCC framework, Pakistan’s

### Mitigation targets and envisioned policies
- Nationally Determined Contribution (NDC) includes conditional and unconditional target of overall 50 and 15 percent reduction, respectively, of its projected emissions by 2030.
- Envisioned policies include:
  - a reforestation project,
  - gradual efforts to green Pakistan’s energy mix,
  - initial steps to adequately tax fuel products,
  - develop a voluntary carbon trading system under the UNFCCC.

### Authorities’ views
- Authorities broadly aligned with staff.
- Focus on implementing the C-PIMA Action Plan and need for greater adaptation investment.
- Emphasis on mobilizing sufficient climate financing, including from external partners.

### Program modalities and access
- Authorities request a 37-month arrangement under the Extended Fund Facility (EFF).
- Access will be set at 261.9 percent of quota (SDR 5,320 million, equivalent to around US$7 billion).
- SDR 760 million available at program approval; the remainder phased evenly over six semiannual reviews.
- Program monitoring through quantitative performance criteria (QPCs), indicative targets (ITs), structural benchmarks (SBs), and semiannual reviews.
- All prior actions have been met following:
  - parliamentary approval of a FY25 budget in line with IMF staff agreement;
  - notification of the annual electricity tariff rebasing;
  - notification of the semiannual gas tariff adjustment.

### Financing commitments and risks
- Program is fully financed, with firm commitments for the first 12 months and good prospects thereafter.
- Financing committed for FY25 includes US$16.8 billion of rollovers of existing short-term financing and US$2½ billion of additional commitments, including from China, Saudi Arabia, the ADB and the IsDB.
- Firm commitments from key bilateral partners to (at least) maintain existing exposures throughout the program, including continuing to roll over existing short-term liabilities.
- Loans from foreign commercial banks totaling US$6.6 billion, renewed during the 2019 EFF and 2023 SBA, are expected to continue to be rolled.
- Financing risks remain high; continued monitoring needed to ensure timely and adequate financing during program reviews.

### Financing need and prospective sources (selected figures preserved exactly)
- A. Financing gap: 4,014; 4,021; 3,024; 1,014; Total (FY25-28) 12,073
- Underlying BoP Gap 2/: 638; 1,309; -1,754; -1,250; -1,057
- Gross international reserves (+= accumulation): 3,376; 2,712; 4,779; 2,263; 13,130
- B. IMF (prospective): 2,014; 2,021; 2,024; 1,014; 7,073
- C. Residual Need / Other prospective financing (A-B) 3/: 2,000; 2,000; 1,000; 0; 5,000
- Memorandum items:
  - Gross Reserves: 12,757; 15,469; 20,248; 22,511
  - months of imports: 2.1; 2.4; 3.0; 3.1
  - percent of ARA metric: 47; 55; 67; 72
  - IFI Budget Support: 800; 650; 650; 650; 2,750
  - ADB: 800; 650; 650; 650; 2,750
  - External Bond Issuance: 0; 0; 1,000; 2,000; 3,000
  - (Net) Commercial Bank borrowing 4/: 700; 700; 1,028; 847; 3,275
- Notes:
  - 1/ Excluding financing needs associated with rollover of short-term bilateral financing, and expected commercial bank rollovers
  - 2/ Change in reserves absent IMF and other program financing
  - 3/ To be met by additional commitments, including from China, Saudi Arabia, the AIIB and IsDB, and commercial borrowing backed by a prospective ADB partial guarantee
  - 4/ Including through ITFC facility

### Safeguards assessment and SBP governance
- Safeguards assessment (completed December 2023) found a broadly sound safeguards framework.
- Recommended strengthening internal control systems in the SBP’s lending operations.
- With Fund TA, authorities will:
  - revise relevant regulations concerning collateral framework and counterparty eligibility (end-December 2024 SB),
  - implement those changes (end-September 2025 SB).
- Staff urged timely filling of Board and deputy governor vacancies to safeguard governance and ensure SBP’s operational readiness.

### Enterprise, financial, and operational risks
- Major enterprise risks for the Fund associated with a new program:
  - elevated business risks due to potential program slippage and Pakistan’s challenging security situation affecting FDI,
  - reputational risks if perceived differential treatment or alternatively for not proceeding after the successful SBA,
  - near-term financial risks remain very elevated and to be mitigated through phased access, burden sharing, and adequate financing assurances.
- Operational risks related to staff’s in-country activities persist; Fund activities are closely coordinated and supported by UNDSS.

### Capacity to repay
- Fund’s exposure would reach SDR 6,816 million by September 2024 (336 percent of quota) with purchases linked to the request.
- With completion of all purchases under the arrangement, exposure would peak in September 2027 at SDR 8,774 million (432 percent of quota; approximately 55 percent of projected gross reserves for FY27).
- Exposure levels are around double the average for recent EFFs.
- Exceptionally high risks—high public debt and gross financing needs, low gross reserves, sociopolitical factors—could jeopardize policy implementation and repayment capacity.
- Restoring fiscal and external viability hinges on strong and sustained policy implementation, fiscal consolidation, external asset accumulation, and decisive reforms for resilient economic development.

### Staff appraisal — key findings and policy recommendations
- Past SBA: policy implementation under the 2023–24 SBA was commendable but deep-seated structural challenges persist.
- Necessary broad actions:
  - fundamentally transform economic policy making,
  - reduce the role of the state in the economy,
  - strengthen the business environment to attract private investment,
  - invest in human capital and development,
  - protect the most vulnerable.
- Fiscal policy:
  - FY25 budget’s fiscal effort and tax base-broadening reforms critical to fiscal sustainability,
  - revenue measures target general sales taxes, personal income tax, corporate income tax of exporters and developers,
  - continue broadening tax base, including near-term reform of provincial agricultural income taxation, elimination of privileges/exemptions/concessions, and robust revenue administration reforms.
- Institutional and structural reforms:
  - reorganize federal-provincial fiscal relations via the National Fiscal Pact,
  - provinces to implement agricultural income tax reforms and meet primary surplus targets,
  - PSDP reform for public investment management,
  - consolidate the TSA and better use cash balances in commercial banking sector to improve liquidity management and debt management.
- Social policy and human capital:
  - expand BISP beneficiary base, increase UCT generosity, commit to inflation and generosity adjustments, enhance CCT programs,
  - ensure enrollment of all eligible families and reverse declines in health and education spending.
- Monetary and exchange rate policy:
  - monetary policy should remain tight and data-dependent to ensure inflation converges to SBP’s target range,
  - recent decrease in policy rate was appropriate; future reductions should await evidence of moderating core inflation and re-anchored inflation expectations,
  - strengthen monetary transmission and SBP safeguards.
  - allow exchange rate to adjust to buffer shocks, maintain competitiveness, rebuild reserves,
  - refrain from restrictions on current account payments, including dividend and profit repatriation.
- Financial stability and AML/CFT:
  - pass legal reforms to crisis management framework,
  - prompt action on banks noncompliant with minimum capital requirements,
  - effective risk-based use of AML/CFT measures to prevent fiscal leakages and abuse of financial system.
- Energy sector:
  - tariff adjustments necessary but not sufficient; reforms to improve distribution and transmission efficiencies and lower generation costs are urgently needed.
- Structural reforms for growth:
  - scale back distortive industrial policies that introduce anti-export biases (including high rates of effective protection on imports, local content requirements, and targeted export subsidies),
  - strengthen and harmonize legal framework for SOEs,
  - establish effective governance frameworks and independent anti-corruption institutions.
- Climate resilience:
  - continue implementing the C-PIMA agenda and broader PIMA agenda,
  - further develop climate financing strategy to build adaptation infrastructure and catalyze external financing.
- Risk outlook:
  - uncertainty and risks remain very high due to political economy considerations, vested interests, tight global financing conditions, volatile commodity prices, and elevated geopolitical tensions.

### Staff support
- Staff supports authorities’ request for a 37-month EFF with access equivalent to SDR 5,320 million (261.9 percent of quota), conditional on sustained implementation, clear communication, and financing assurances to achieve program objectives.

*Source: IMF staff report excerpt.*

### 61.      It is recommended that the next Article IV consultation with Pakistan be held on the

### 1pakea2024003-print-pdf - 61.      It is recommended that the next Article IV consultation with Pakistan be held on the

### Recommendation on consultation cycle
- It is recommended that the next Article IV consultation with Pakistan be held on the 24-month cycle, in accordance with Decision No. 14747–(1096) on consultation cycles.

### Growth and sectoral performance (FY12–FY24; FY24)
- The economic rebound in FY24 was led by agricultural output, with industry and services remaining subdued.
- Real GDP growth and sectoral contributions shown over FY12–FY24 (weighted y-o-y percentage change).
- Real GDP at factor cost (selected years / projections):
  - 2018/19: 3.1
  - 2019/20: -0.9
  - 2020/21: 5.8
  - 2021/22: 6.2
  - 2022/23: -0.2
  - 2023/24: 2.0
  - 2024/25 Prog.: 2.4
  - 2025/26 Proj.: 3.2

### External sector, reserves, and exchange rate
- Current account narrowed further as exports and remittances rebounded ahead of imports.
- Gross official reserves and exchange rate (2017M1–2024M7):
  - Gross reserves (in millions of US$) time series and end-period values reported in tables.
  - End-period gross official reserves (millions of U.S. dollars; Table 3a memo): 7,274 (2018/19), 12,175 (2019/20), 17,297 (2020/21), 9,821 (2021/22), 4,455 (2022/23), 9,029 (2023/24), 9,381 (2024/25 Prog.), 12,757 (2025/26 Est.), 15,469 (2026/27), 20,248 (2027/28), 22,511 (2028/29), 25,356 (2029/30).
- Net swap/forward position and SBP Net Foreign Assets shown (2017M1–2024M6); recent narrowing of the SBP’s derivative position should continue.
- External competitiveness challenging: REER has crept back up amid recent nominal stability.
- Real and Nominal Effective Exchange Rate indices (2010=100) reported through 2024M5.

### Monetary and financial indicators
- Policy rate movements and market response:
  - Policy rate held at 22 percent during FY24; Monetary Policy Committee cut the rate by 150 bps in their June 10 meeting.
- Interest rate indicators (2017M1–2024M7):
  - SBP interest rate corridor and weighted average repo rate series presented.
  - Six-month treasury bill rate (period average, percent): table reports values including 10.2, 11.9, 7.3, 11.0, 18.3, ..., 21.5 (selected entries).
- Market indicators:
  - Pakistan’s bond spread stabilized at moderate yet still elevated levels.
  - Stock market boom since late 2023 aided in part by foreign investors; KSE 100 index and net foreign portfolio purchases series provided (Jan-23=100 base).
- Liquidity operations:
  - Open Market Operations (OMOs) injections remain very high (outstanding amounts in trillions of Pakistani rupees; 2017M1–2024M6).

### Banking system and financial soundness (2010/11–2022/23; 2013–24)
- Bank credit orientation:
  - Banking system remains oriented toward providing credit to the government; credit to private sector has declined sharply in real terms.
- Nonperforming loans and growth:
  - NPLs rose in FY23 but remained relatively contained in the context of the large economic deceleration.
  - NPL to loan ratio and real GDP growth series provided (2010/11–2022/23).
- Comparative private credit performance:
  - Pakistan lags peers in private credit relative to GDP (peer comparison table; latest available).
- Capital, profitability, liquidity (2010/11–2022/23; 2013–24):
  - Regulatory capital to risk-weighted assets and Tier I ratios reported (e.g., Regulatory capital to risk-weighted assets series: 14.9, 17.1, 17.3, 16.2, 15.8, 16.2, 17.0, 18.6, 16.7, 17.0, 19.7, 19.6).
  - Return on assets (after tax) series: 1.1, 1.5, 1.5, 1.3, 0.9, 0.8, 0.8, 1.0, 1.0, 1.6, 1.4.
  - Liquid assets to total assets and to deposits series (e.g., Liquid assets to total assets: 48.6, 49.2, 53.8, 53.7, 54.0, 48.7, 49.7, 54.8, 55.4, 56.6, 63.5, 64.0).

### Fiscal position and public finances (selected indicators; 2018/19–2024/25 and medium term)
- Key fiscal aggregates (percent of GDP unless otherwise indicated, Table 1 / Table 4b):
  - Revenue and grants: 11.3 (2018/19), 13.3 (2019/20), 12.4 (2020/21), 12.1 (2021/22), 11.5 (2022/23), 12.5 (2023/24), 12.6 (2024/25 Prog.), 15.4 (2025/26 Est.), 15.0 (2026/27), 15.5 (2027/28), 15.8 (2028/29).
  - Expenditure (including statistical discrepancy): 19.1 (2018/19), 20.3 (2019/20), 18.5 (2020/21), 20.0 (2021/22), 19.2 (2022/23), 20.0 (2023/24), 19.3 (2024/25 Prog.), 21.4 (2025/26 Est.), 19.7 (2026/27), 19.0 (2027/28), 18.8 (2028/29).
  - Budget balance (including grants): -7.8 (2018/19), -7.0 (2019/20), -6.0 (2020/21), -7.8 (2021/22), -7.7 (2022/23), -7.4 (2023/24), -6.7 (2024/25 Prog.), -6.0 (2025/26 Est.), -4.7 (2026/27), -3.6 (2027/28), -3.0 (2028/29).
  - Primary balance (excluding grants): -3.1 (2018/19), -1.6 (2019/20), -1.2 (2020/21), -3.1 (2021/22), -0.9 (2022/23), 0.4 (2023/24), 0.9 (2024/25 Prog.), 2.0 (2025/26 Est.), 1.7 (2026/27), 2.0 (2027/28), 2.0 (2028/29).
- Debt burden:
  - General government debt incl. IMF obligations (percent GDP): 77.5 (2018/19), 79.6 (2019/20), 73.5 (2020/21), 76.2 (2021/22), 77.3 (2022/23), 72.1 (2023/24), 69.2 (2024/25 Prog.), 71.4 (2025/26 Est.).
  - Total general government and government guaranteed debt (incl. IMF; percent GDP): 82.0, 84.5, 77.8, 80.6, 81.5, 76.0, 73.0, 75.1 (selected years).
- Fiscal tables (Table 4a, 4b) provide levels in billions of Pakistani rupees for revenue, expenditure, interest, development spending, and financing composition (external, domestic bank, domestic nonbank).

### Medium-term macroeconomic framework (2019/20–2028/29; Table 2)
- Real GDP at factor cost projections:
  - 2024/25 Prog.: 2.4
  - 2025/26 Est.: 3.2
  - 2026/27 Proj.: 4.0
  - 2027/28 Proj.: 4.1
  - 2028/29 Proj.: 4.5
- Current account balance (in percent of GDP):
  - 2024/25 Prog.: -0.2
  - 2025/26 Est.: -0.9
  - 2026/27 Proj.: -0.9
  - 2027/28 Proj.: -0.8
  - 2028/29 Proj.: -1.0
- Gross reserves (billions of US$) and months of imports:
  - Gross reserves: 12.2 (2023/24), 17.3 (2024/25 Prog.), 9.8 (2025/26 Est.), 4.5 (2026/27), 9.0 (2027/28), 9.4 (2028/29) [table entries across medium-term].
  - In months of imports: 2.3, 2.5, 1.9, 0.8, 1.5, 1.6, 2.4, 3.0, 3.1, 3.3 (selected entries across years).

### Balance of payments and external financing (Table 3a, 3b)
- Current account (US$ millions; selected):
  - 2018/19: -13,434
  - 2019/20: -4,449
  - 2020/21: -2,820
  - 2021/22: -17,481
  - 2022/23: -3,275
  - 2023/24: -3,010
  - 2024/25 Prog.: -665
  - 2025/26 Est.: -3,578
  - 2026/27 Proj.: -3,772
  - 2027/28 Proj.: -3,599
  - 2028/29 Proj.: -4,462
  - 2029/30 Proj.: -4,784
- Goods balance (US$ millions): large deficits across years (e.g., -27,612; -21,109; -28,634; -39,050; -24,819; -23,758).
- Exports f.o.b. (US$ millions): 24,257 (2018/19), 22,536 (2019/20), 25,639 (2020/21), 32,493 (2021/22), 27,876 (2022/23), 31,204 (2023/24), 31,101 (2024/25 Prog.), 31,751 (2025/26 Est.), 34,217 (2026/27), 36,980 (2027/28), 39,812 (2028/29), 42,930 (2029/30).
- Imports f.o.b. (US$ millions): 51,869 (2018/19), 43,645 (2019/20), 54,273 (2020/21), 71,543 (2021/22), 52,695 (2022/23), 54,962 (2023/24), 53,166 (2024/25 Prog.), 57,180 (2025/26 Est.), 60,480 (2026/27), 64,042 (2027/28), 67,791 (2028/29), 71,867 (2029/30).
- Workers' remittances (US$ millions): 21,740 (2018/19), 23,131 (2019/20), 29,450 (2020/21), 31,279 (2021/22), 27,333 (2022/23), 28,081 (2023/24), 30,250 (2024/25 Prog.), 29,831 (2025/26 Est.), 30,356 (2026/27), 31,852 (2027/28), 32,713 (2028/29), 33,556 (2029/30).
- Financial account (US$ millions): 11,759 (2018/19), 6,479 (2019/20), 8,268 (2020/21), 10,207 (2021/22), -1,643 (2022/23), 6,523 (2023/24), 5,446 (2024/25 Prog.), 6,273 (2025/26 Est.), 4,918 (2026/27), 7,373 (2027/28), 7,797 (2028/29), 9,263 (2029/30).
- Overall balance (US$ millions): -1,631 (2018/19), 2,465 (2019/20), 5,053 (2020/21), -7,371 (2021/22), -5,384 (2022/23), 3,212 (2023/24), 3,654 (2024/25 Prog.), 2,878 (2025/26 Est.), 1,256 (2026/27), 3,872 (2027/28), 3,428 (2028/29), 4,572 (2029/30).

### Gross external financing requirements and available financing (Table 3b)
- Gross external financing requirements (US$ millions; selected):
  - 2018/19: 25,552
  - 2019/20: 23,430
  - 2020/21: 22,206
  - 2021/22: 33,736
  - 2022/23: 23,859
  - 2023/24: 22,268
  - 2024/25 Prog.: 20,357
  - 2025/26 Est.: 18,813
  - 2026/27 Proj.: 20,088
  - 2027/28 Proj.: 23,712
  - 2028/29 Proj.: 24,625
  - 2029/30 Proj.: 23,235
- Available financing (US$ millions; selected): 21,103 (2018/19), 24,890 (2019/20), 26,826 (2020/21), 25,208 (2021/22), 17,327 (2022/23), 23,833 (2023/24), 22,278 (2024/25 Prog.), 18,175 (2025/26 Est.), 18,779 (2026/27), 25,466 (2027/28), 25,875 (2028/29), 26,081 (2029/30).
- Underlying BOP gap (A–B; US$ millions): 4,449 (2018/19), -1,459 (2019/20), -4,620 (2020/21), 8,528 (2021/22), 6,532 (2022/23), -1,565 (2023/24), -1,921 (2024/25 Prog.), 638 (2025/26 Est.), 1,309 (2026/27), -1,754 (2027/28), -1,250 (2028/29), -2,845 (2029/30).

### Public debt composition and debt service (Table 9; 2022/23–2024/25)
- Total public debt stock (US$ million): 253,843 (Dec-23; 100.0 percent total).
- External debt (US$ million): 102,748 (40.5 percent total; percent GDP 30.5).
- Domestic debt (US$ million): 151,096 (59.5 percent total; percent GDP 44.8).
- Selected creditor composition (Dec-23 stock / debt service details):
  - Multilateral creditors total: 46,509 (18.3 percent total).
  - IMF: 7,596 (3.0 percent total).
  - World Bank: 20,121 (7.9 percent total).
  - Bilateral creditors total: 41,689 (16.4 percent total); of which China: 23,651 (9.3 percent total); Saudi Arabia: 6,661 (2.6 percent).
  - Bonds (domestic and external): 7,804 (3.1 percent total).
  - T-Bills: 29,695 (11.7 percent total).
  - Bonds (domestic): 106,539 (42.0 percent total).
- Memo: Nominal GDP reported: 356,026 (US$ million, used for shares of debt-to-GDP).

### Monetary aggregates and banking system liquidity (Monetary Survey; Table 5)
- Broad money (percent change, selected): 11.3, 17.5, 16.2, 13.6, 14.2, 13.5, 16.1, 13.8 (series entries).
- Broad money (levels, billions PRs): 17,798; 20,908; 24,298; 27,603; 31,523; 31,525; 32,936; 33,772; 36,585; 41,633 (selected quarterly/yearly entries).
- Net foreign assets (NFA) and net domestic assets (NDA) series reported with levels and changes; SBP NFA and NDA reported separately.
- Reserve money (levels) and banks' reserves series provided; reserve money percent change entries include 19.9, 16.8, 12.8, 7.7, 22.4, 11.0, 2.6, 14.5 (selected).

### IMF program mechanics and proposed schedule (Table 8)
- Proposed Schedule of Reviews and Purchases (millions of SDRs; percent of quota):
  - Approval of arrangement: September 25, 2024 — 760 SDRs — 37.4 percent of quota.
  - First review and end-December 2024 performance/continuous criteria: March 15, 2025 — 760 SDRs — 37.4 percent.
  - Second review and end-June 2025 performance/continuous criteria: September 15, 2025 — 760 SDRs — 37.4 percent.
  - Third review and end-December 2025 performance/continuous criteria: March 15, 2026 — 760 SDRs — 37.4 percent.
  - Fourth review and end-June 2026 performance/continuous criteria: September 15, 2026 — 760 SDRs — 37.4 percent.
  - Fifth review and end-December 2026 performance/continuous criteria: March 15, 2027 — 760 SDRs — 37.4 percent.
  - Sixth review and end-June 2027 performance/continuous criteria: September 15, 2027 — 760 SDRs — 37.4 percent.
  - Total: 5,320 SDRs — 261.9 percent of quota.

*Sources: Pakistani authorities; IMF World Economic Outlook Database; Bloomberg; IMF staff calculations and projections.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### GLOBAL RISKS: Sources, Likelihood, Horizon, Impact, and Policy Responses
- Intensification of regional conflict(s).
  - Relative Likelihood: High
  - Time Horizon: Short Term
  - Expected Impact: High
  - Expected effects:
    - Financial volatility raises risk aversion, causing financing pressures and capital outflow pressures.
    - Spending pressures and/or lower growth, weaken the underlying fiscal position.
    - Weaker confidence and supply/trade disruptions drag on economic growth.
  - Policy Response:
    - Implement strong policies and strengthen institutions as a foundation of strong and sustainable growth.
    - Scale up targeted social assistance.
    - Resist pressures to weaken fiscal discipline and preserve fiscal and debt sustainability.
    - Build fiscal and external buffers.

- Commodity price volatility.
  - Relative Likelihood: High
  - Time Horizon: Short Term
  - Expected Impact: High
  - Expected effects:
    - Higher energy prices could worsen the energy sector’s already weak financial position, especially if cost increases are not passed through to prices, leading to buildup of more arrears and pressure for greater subsidies.
    - Higher headline inflation.
    - Tighter global financial conditions and capital outflow pressures.
    - Spending pressures and/or lower growth, weakening the underlying fiscal position.
    - Weaker confidence and supply disruptions drag on economic growth.
  - Policy Response:
    - Allow energy prices increases to be passed through to end-users.
    - Press ahead with reforms of the energy sector to address efficiency and costs.
    - Scale up targeted social assistance.
    - Maintain financial stability to weather external shocks.
    - Resist pressures to weaken fiscal discipline, preserve fiscal and debt sustainability.
    - Build fiscal and external buffers.
    - Allow exchange rate flexibility to absorb external shocks and facilitate adjustment.

- Social discontent.
  - Relative Likelihood: Medium
  - Time Horizon: Short to Medium Term
  - Expected Impact: High
  - Expected effects:
    - Spending pressures and/or lower growth, weaken the underlying fiscal position.
    - Weaker confidence and supply disruptions drag on economic growth.
  - Policy Response:
    - Scale up targeted social assistance.
    - Resist pressures to weaken fiscal discipline and preserve fiscal and debt sustainability.
    - Build fiscal and external buffers.

- Abrupt global slowdown or recession.
  - Relative Likelihood: Medium
  - Time Horizon: Short Term
  - Expected Impact: Medium
  - Scenario note:
    - China: Sharper-than-expected contraction in the property sector weighs on private demand, further amplifies local government fiscal strains, and results in disinflationary pressures and adverse macro-financial feedback loops.
  - Expected effects:
    - Disruptions in trade channels lead to lower exports and supply disruptions.
    - Tighter financial conditions and capital outflows.
    - Weakening global demand decreases commodity prices.
  - Policy Response:
    - Allow exchange rate flexibility to support competitiveness, while intervening only during disorderly market conditions.
    - Maintain financial stability.
    - Preserve fiscal and debt sustainability.

- Monetary policy miscalibration.
  - Relative Likelihood: Medium
  - Time Horizon: Short to Medium Term
  - Expected Impact: Medium
  - Expected effects:
    - Lower demand for exports after tightening.
    - Tighter financial conditions and capital outflows.
    - Stock market deteriorates.
  - Policy Response:
    - Allow exchange rate flexibility to absorb shocks and facilitate adjustment.
    - Build fiscal and external buffers.
    - Implement structural reforms to anchor confidence and improve competitiveness.
    - Maintain an appropriate medium-term debt strategy.
    - Maintain financial stability to weather external shocks, tighten supervision to monitor banking risks.

- Systemic financial instability.
  - Relative Likelihood: Medium
  - Time Horizon: Short to Medium Term
  - Expected Impact: Medium
  - Expected effects:
    - Worsening sentiment and lower demand for Pakistan’s assets resulting in increased funding costs or reduced capital inflows.
    - Stock market deteriorates.
    - Reduced interest in privatization portfolio.
  - Policy Response:
    - Allow exchange rate flexibility to cushion shocks.
    - Build fiscal and external buffers.
    - Maintain an appropriate medium-term debt strategy.
    - Maintain financial stability to weather external shocks, tighten supervision to monitor banking risks.

### INTERNATIONAL / MEDIUM-LONGER RUN RISKS
- Extreme climate events.
  - Relative Likelihood: Medium
  - Time Horizon: Medium to Long Term
  - Expected Impact: Medium
  - Expected effects:
    - Weaker confidence and supply disruptions drag on economic growth.
    - Fiscal pressures associated with recovery spending and reconstruction needs.
    - Higher risk aversion, and higher risk premia leading to financing pressures and capital outflows.
    - Trade disruptions leading to higher commodity price levels and volatility, heightening external imbalances.
    - Disorderly migration.
  - Policy Response:
    - Implement strong policies and strengthen institutions as a foundation of strong and sustainable growth.
    - Allow exchange rate flexibility to support competitiveness.
    - Maintain financial stability.
    - Advance policies and reforms aiming at climate risk mitigation, adaptation, and transition to a low-carbon economy.
    - Build fiscal and external buffers.

- Sovereign debt distress.
  - Relative Likelihood: Medium
  - Time Horizon: Short to Medium Term
  - Expected Impact: Medium/ High
  - Expected effects:
    - Worsening sentiment and lower demand for Pakistan’s assets resulting in increased funding costs or reduced capital inflows.
    - Higher debt service and worse prospects for market access.
    - Weakening global demand decreases commodity prices.
  - Policy Response:
    - Implement strong policies and strengthen institutions as a foundation of strong and sustainable growth.
    - Build fiscal and external buffers.
    - Maintain financial stability to weather external shocks.
    - Maintain an appropriate medium-term debt strategy.
    - Allow exchange rate flexibility to absorb shocks and facilitate adjustment.

### COUNTRY-SPECIFIC RISKS: Sources, Likelihood, Horizon, Impact, and Policy Responses
- Slippages in policy implementation.
  - Relative Likelihood: High
  - Time Horizon: Short to Medium Term
  - Expected Impact: High
  - Expected effects:
    - Weaker fiscal discipline could compromise the quality and durability of fiscal adjustment; expose debt sustainability risks.
    - Deviating from exchange rate flexibility, putting pressure on reserves and/or leading to FX shortages, and undermining competitiveness.
    - Unfinished structural reform agenda would reduce medium-term growth prospects, preserve over-reliance on the public sector and large informal economy, and leave unaddressed contingent liabilities.
    - Subdued economic growth.
  - Policy Response:
    - Implement strong policies and strengthen institutions (including anti-corruption agencies) as a foundation of strong and sustainable growth.
    - Resist pressures to weaken fiscal discipline and preserve fiscal sustainability.
    - Allow exchange rate flexibility to absorb shocks and facilitate adjustment.
    - Build external buffers.
    - Foster more inclusive growth through scaling up targeted social assistance.
    - Improve external competitiveness and advance reforms to enhance the private sector business environment.

- Deterioration in security conditions.
  - Relative Likelihood: Medium
  - Time Horizon: Short to Medium Term
  - Expected Impact: Medium/ High
  - Expected effects:
    - Eroded confidence and discouraged investment would disrupt economic activity and reduce growth prospects.
    - Increased military spending/ fiscal burden could strain fiscal sustainability.
  - Policy Response:
    - Instill confidence through strong implementation of the economic stabilization program and structural reforms.
    - Maintain engagement with donors.
    - Build external buffers.
    - Preserve fiscal sustainability.

### BOTTOM LINE ASSESSMENT
- The balance of risks is tilted to the downside.

### RISK METRICS, DSA SUMMARY, AND STAFF COMMENTARY
- Figure 1. Pakistan: Risk of Sovereign Stress — Overall...High
  - Near term: 1/n.a.n.a.
  - Medium term: High
  - Long term: ...Moderate
  - Debt stabilization in the baseline: Yes
  - GFN: High...
  - Stress test... (not detailed in source excerpt)
- DSA Summary Assessment (staff commentary):
  - Public debt continues to be assessed as sustainable in the baseline scenario underpinned by steadfast implementation of the proposed EFF policies, with gradual fiscal consolidation continuing in FY25 and beyond, and the gradual resumption of growth in the coming years.
  - Elevated gross financing needs continue to pose high risks to debt sustainability, particularly as fiscal and reserve buffers are very low.
  - Timely disbursements of committed bilateral and multilateral support is critical in the period ahead.
  - Higher-for-longer interest rates, a prolonged stagnation due to tight macro policies, renewed pressures on the exchange rate, possibly policy reversals, and contingent liabilities related to SOEs pose significant risks to debt sustainability.
  - Insufficient progress with policies and structural reforms could hamper potential growth.
  - Pakistan is very exposed to the adverse consequences of climate change, such as more frequent floods and droughts, and the necessary adaptation costs would slow the reduction of debt and financing requirements.
- Additional DSA notes:
  - If the macroeconomic prudence continues for the medium term as envisioned by the EFF baseline, the debt path is expected to remain on a downward trajectory.
  - The GFNs, although high, would be covered by official bilateral and domestic financing.
  - Underlying vulnerabilities and risks are very high, including due to the significant sovereign exposure of domestic banks, and the scope for policy to respond flexibly is extremely limited.
  - The overall risk of sovereign stress is high, reflecting a high level of vulnerability from elevated debt and gross financing needs and low reserve buffers.
  - Risks are mitigated by (i) the fiscal adjustment which commenced under the SBA and is to be safeguarded by the EFF onto the medium term, (ii) financial commitments by bilateral partners, and (iii) the ability of the banking system to rollover existing domestic debt.

*Source: Fund staff.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Debt coverage and contingent liabilities
- Debt coverage includes bilateral FX swap liabilities of the central bank and deposits of official creditors at the central bank, domestic PIA debt, provincial commodity operations debt.
- As of end-FY23, contingent liabilities not included in the perimeter consist of:
  - guarantees (PRs 3,291 billion)
  - non-guaranteed circular debt in the power and gas sector (PRs 1,545 billion and PRs 2.1 trillion)
  - debt from SOEs' commodity operations (PRs 641 billion)
  - non-guaranteed SOE debt (PRs 255 billion)
  - other contingent liabilities (PRs 500 billion, estimated)
- The estimated total of those exposures amounts to 9.9 percent of GDP.
- Notes on recording and valuation included in staff commentary: use of stock of arrears as proxy for accounts payable; definitions of nominal value, face value, market value; inclusion of accrual recording/commitment basis, etc.

### Public debt structure indicators (2023 snapshot and trends)
- External vs local currency projection (percent of GDP): timeline shown 2014–2032 with projection distinguishing Foreign currency and Local currency.
- Public debt by holder (Percent of GDP) composition (historical and projected): Domestic central bank; Domestic commercial banks; Domestic other creditors; External official creditors; External private creditors.
- Public debt by governing law, 2023 (percent):
  - Domestic law: 59%
  - Foreign law ex. multilateral: 21%
  - Multilateral: 20%
- Debt by instruments (Percent of GDP): Marketable debt vs Nonmarketable debt (historical and projected).
- Public debt by maturity (Percent of GDP) with residual maturity: 4.2 years; projected shares ≤ 1 year, 1-5 years, > 5 years over 2019–2029.

Staff commentary highlights:
- Pakistan's external debt is predominantly to bilateral and multilateral creditors.
- Although the maturity structure has improved somewhat, the high share of short-term debt poses risks to debt sustainability and will require careful management.
- Pakistan’s domestic debt is mostly to domestic banks, increasing the sovereign-bank nexus.
- During the latest monetary tightening cycle, Pakistan has resorted to issuing predominantly floating-rate domestic debt, such that debt servicing cost will come down only slowly.

### Baseline scenario projections and decomposition (Percent of GDP, unless otherwise indicated)
- Public debt path (Actual and projections):
  - 2023: 78.6
  - 2024: 70.0
  - 2025: 72.1
  - 2026: 70.4
  - 2027: 67.8
  - 2028: 64.3
  - 2029: 61.0
  - 2030: 58.9
  - 2031: 57.9
  - 2032: 57.0
  - 2033: 56.1
- Change in public debt:
  - 2023: 0.9
  - 2024: -8.6
  - 2025: 2.1
  - 2026: -1.7
  - 2027: -2.6
  - 2028: -3.5
  - 2029: -3.4
  - 2030: -2.0
  - 2031: -1.0
  - 2032: -1.0
  - 2033: -0.9
- Contribution of identified flows:
  - 2023: 1.3
  - 2024: -3.2
  - 2025: 0.6
  - 2026: -1.8
  - 2027: -2.5
  - 2028: -3.3
  - 2029: -3.1
  - 2030: -1.8
  - 2031: -0.8
  - 2032: -0.8
  - 2033: -0.7
- Primary deficit:
  - 2023: 0.9
  - 2024: -0.4
  - 2025: -2.1
  - 2026: -1.7
  - 2027–2033: -2.0 (2027–2029) then -1.0 (2030) then 0.0 (2031–2033) [table shows -2.0 then -1.0 then 0.0s]
- Noninterest revenues (percent of GDP): 11.5 (2023), 12.4 (2024), 15.4 (2025), 15.0 (2026), 15.5 (2027), 15.8 (2028–2033)
- Noninterest expenditures (percent of GDP): 12.4 (2023), 12.0 (2024), 13.3 (2025), 13.3 (2026), 13.4 (2027), 13.8 (2028), 13.8 (2029), 14.8 (2030), 15.8 (2031–2033)
- Automatic debt dynamics and components:
  - Automatic debt dynamics: 0.4 (2023), -3.4 (2024), 1.8 (2025), -0.1 (2026), -0.5 (2027), -1.2 (2028), -1.1 (2029), -0.9 (2030), -0.8 (2031), -0.8 (2032), -0.7 (2033)
  - Real interest rate and relative inflation: -4.1 (2023), -1.6 (2024), 4.0 (2025), 2.7 (2026), 2.3 (2027), 1.7 (2028), 1.7 (2029), 1.8 (2030), 1.7 (2031), 1.7 (2032), 1.7 (2033)
  - Real interest rate: -9.1 (2023), -6.6 (2024), 2.4 (2025), 1.4 (2026), 1.3 (2027), 0.7 (2028), 0.8 (2029), 1.0 (2030), 1.0 (2031), 1.0 (2032), 1.0 (2033)
  - Relative inflation: 5.0 (2023), 5.0 (2024), 1.6 (2025), 1.3 (2026), 1.0 (2027), 1.0 (2028), 0.9 (2029), 0.8 (2030), 0.8 (2031), 0.7 (2032), 0.7 (2033)
  - Real growth rate: 0.2 (2023), -1.8 (2024), -2.2 (2025), -2.8 (2026–2029), -2.9 (2029), -2.8 (2030), -2.6 (2031), -2.5 (2032–2033)
- Gross financing needs (GFN) and debt service (percent of GDP):
  - Gross financing needs: 23.5 (2023), 22.7 (2024), 22.5 (2025), 19.0 (2026), 17.0 (2027), 15.3 (2028), 19.3 (2029), 16.4 (2030), 15.8 (2031), 15.0 (2032), 13.7 (2033)
  - Debt service (of which): 22.6 (2023), 23.1 (2024), 24.5 (2025), 20.7 (2026), 19.0 (2027), 17.3 (2028), 21.2 (2029), 17.4 (2030), 15.8 (2031), 15.0 (2032), 13.7 (2033)
- GFN by currency:
  - Local currency: 17.9 (2023), 19.9 (2024), 21.6 (2025), 17.6 (2026), 16.3 (2027), 13.6 (2028), 17.5 (2029), 14.4 (2030), 12.6 (2031), 12.1 (2032), 10.9 (2033)
  - Foreign currency: 4.7 (2023), 3.2 (2024), 2.9 (2025), 3.1 (2026), 2.8 (2027), 3.7 (2028), 3.8 (2029), 3.0 (2030), 3.2 (2031), 2.9 (2032), 2.8 (2033)
- Memo macro assumptions:
  - Real GDP growth (percent): -0.2 (2023), 2.4 (2024), 3.2 (2025), 4.0 (2026), 4.1 (2027), 4.5 (2028–2033)
  - Inflation (GDP deflator; percent): 25.8 (2023), 23.2 (2024), 9.5 (2025), 7.8 (2026), 6.5 (2027–2033)
  - Nominal GDP growth (percent): 25.8 (2023), 26.4 (2024), 14.7 (2025), 12.5 (2026), 11.1 (2027–2033)
  - Effective interest rate (percent): 11.1 (2023), 12.5 (2024), 13.4 (2025), 9.9 (2026), 8.5 (2027), 7.7 (2028), 7.8 (2029), 8.3 (2030), 8.3 (2031), 8.5 (2032), 8.5 (2033)

Staff commentary:
- Public debt is projected to decline gradually over the projection horizon and will require the robust continuation of prudent policies beyond the program period.
- The margin of error for policy slippages and delays in urgently needed structural reforms remains very small.

### Realism of baseline assumptions and fiscal adjustment feasibility
- Forecast track record and comparator group analysis show percentile rankings; T-bill issuance as share of total domestic issuance is projected to decline gradually.
- Staff commentary: The programmed fiscal adjustment path is ambitious but feasible given:
  - broad political support for the EFF,
  - support from a broad set of partners,
  - favorable demographic dynamics,
  - significant scope for revenues by widening the tax base (limiting adverse consequences for growth from fiscal consolidation).
- Caveat: renewed efforts for structural reforms are needed to lift growth potential and avoid negative debt dynamics.

### Medium-term risk analysis (indices and stress)
- Debt Fanchart Module:
  - Debt fanchart index (DFI) value: 1.6 → Risk signal: Moderate (per footnote thresholds).
  - Final fanchart terminal debt-to-GDP: x48.4 1.1 (presentation shows Terminal debt-to-GDP x48.41.1; interpreted as terminal debt-to-GDP and contribution, preserved formatting).
- GFN Financeability Module:
  - GFN financeability index (GFI): 27.9 → Risk signal: High.
  - Average baseline GFN: 19.3 percent of GDP.
  - Initial Banks' claims on the general government: 59.6 (pct bank assets); change in banks' claims in stress: 6.0 (pct banks' assets).
- Aggregated medium-term index: Risk signal: 5/ Final assessment:
  - Prob. of missed crisis, 2024-2029, if stress not predicted: 54.5 pct.
  - Prob. of false alarms, 2024-2029, if stress predicted: 6.8 pct.
- Staff commentary:
  - Debt Fanchart points to moderate risk because fiscal effort sets Pakistan on a declining debt-to-GDP trajectory.
  - GFN Financeability points to high risk due to high share of bank assets invested in government securities and average GFN-to-GDP ratio above the 75th percentile of the comparator group.
  - Aggregated index points to a high level of risk.

### Long-term risk analysis and climate implications
- Long-Term Risk (Large Amortization):
  - Commentary: Risk of large amortizations is not triggered because projected GFN-to-GDP and Amortization-to-GDP ratios for years t+6 through t+30 do not exceed historical average (plus one standard deviation) thresholds.
  - Debt-stabilizing primary balance: -1.6 percent of GDP; historical 10-year average primary balance: -1.4 percent of GDP.
  - With the primary balance held constant at its baseline year t+5 value (2 percent of GDP), Pakistan would experience rapid debt decumulation.
  - Note: Pakistan has many unmet development needs; if macro stability were firmly entrenched, expansion of development spending would be beneficial.
- Climate change: adaptation scenarios:
  - Custom baseline assumes zero primary balance from 2030 onwards.
  - Standardized scenario reflects adaptation costs of 0.6 percent of GDP annually, before gradually declining towards 0.3 percent of GDP by the mid-2030s.
  - Customized scenario illustrates reduced initial adaptation investment and relatedly lower long-term growth (3.5 percent instead of 4.5 percent).
- Commentary: Given Pakistan's exceptionally high vulnerability to climate change, freeing up fiscal space for adaptation investment within debt sustainability constraints will be critical.

### External Debt Sustainability (Annex III highlights, 2019–2029)
- Baseline external debt (percent of GDP): 2019: 33.2; 2020: 37.6; 2021: 35.1; 2022: 32.2; 2023: 34.9; 2024: 32.0; 2025: 31.3; 2026: 31.5; 2027: 30.7; 2028: 28.9; 2029: 27.3
- Debt-stabilizing non-interest current account: -1.4
- Change in external debt: 6.2 (2019), 4.4 (2020), -2.5 (2021), -2.9 (2022), 2.7 (2023), -2.9 (2024), -0.7 (2025), 0.2 (2026), -0.8 (2027), -1.8 (2028), -1.6 (2029)
- Identified external debt-creating flows: 6.7 (2019), 2.9 (2020), -4.9 (2021), 1.7 (2022), 4.3 (2023), -1.0 (2024), -0.5 (2025), -0.8 (2026), -0.9 (2027), -0.8 (2028), -0.8 (2029)
- Current account deficit, excluding interest payments (percent of GDP): 3.0 (2019), 0.3 (2020), 0.1 (2021), 3.8 (2022), -0.5 (2023), -1.5 (2024), -0.5 (2025), -0.4 (2026), -0.5 (2027), -0.3 (2028), -0.2 (2029)
- Exports and imports (growth and levels) and other macro assumptions detailed in table (real GDP growth, GDP deflator in US dollars, nominal external interest rate, growth of exports/imports in US dollar terms).
- External debt-to-exports ratio (in percent) examples: 2019: 353.1; 2020: 404.0; 2021: 387.2; 2022: 304.4; 2023: 332.0; 2024: 308.1; 2025: 314.5; 2026: 300.4; 2027: 289.0; 2028: 273.1; 2029: 258.8
- Gross external financing need (in billions of US dollars): 26.6 (2019), 19.8 (2020), 15.5 (2021), 32.7 (2022), 22.3 (2023), 19.8 (2024), 18.7 (2025), 20.0 (2026), 23.7 (2027), 24.6 (2028), 23.2 (2029)
- Scenario and bound tests: multiple stress scenarios (interest rate shock, current account shock, growth shock, combined shock, real depreciation shock) shown with external debt-to-GDP paths and average projections.

*Source: IMF staff estimates and projections (content unit: 5. Debt consolidation across sectors).*

### Annex IV. External Sector Assessment

### Annex IV. External Sector Assessment

### Overall Assessment
- The external position of Pakistan in FY23 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- The current account (CA) deficit narrowed to 1 percent of GDP, compared to 4.7 percent in FY22.
- Without import payment restrictions, the CA deficit in FY23 would have been larger, requiring additional real exchange rate depreciation to bring the CA back to equilibrium.

### Potential Policy Responses
- Under the proposed EFF program:
  - Monetary authorities would commit to a flexible exchange rate, which would act as a buffer for shocks.
  - Authorities would refrain from imposing restrictions on import payments or dividend repatriation.
  - Expected fiscal tightening and structural reforms anchored by the EFF would be expected to boost productivity and competitiveness, consistent with strengthening Pakistan’s international investment position over the long term.

### Foreign Assets and Liabilities: Position and Trajectory
- Background:
  - Pakistan’s Net International Investment Position (NIIP) reached US$-131 billion in 2023, a similar level to 2022 but markedly lower than FY2019-2022, when NIIP averaged US$-116 billion.
  - Net direct investment stood at US$-28.8 billion.
  - Net portfolio investment reached US$-9.3 billion.
  - Pakistan’s IIP does not feature substantial positions in financial derivatives.
- Assessment:
  - Gross debt-service obligations remain substantial.
  - Although past CA imbalances—stemming from insufficient exchange rate flexibility and import restrictions—may have required additional policy adjustment to reach external equilibrium, the trajectory for Pakistan’s IIP is now better anchored, with the current account deficit in FY closer to zero and a proposed program that would anchor any needed adjustment.
- 2023 (% GDP) snapshot:
  - NIIP: -38.8
  - Gross Assets: -6.6
  - Gross Liab.: -45.3

### Current Account
- Background:
  - The CA in FY24 is projected to reach a small deficit of about US$300 million, just under 0.1 percent of GDP.
  - Staff projects the current account deficit to widen over the duration of the program and remain close to 1 percent of GDP.
- Assessment:
  - The external position in FY23 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
  - The cyclically adjusted CA in FY23 is estimated to have been -0.9 percent of GDP.
  - The EBA CA norm is estimated at -0.6 percent of GDP.
  - The CA gap is estimated to be -0.2.
- Model estimates for 2023 (in percent of GDP and model outputs as presented):
  - CA-Actual: -1
  - Cyclical Contributions (from model): -0.1
  - Adjusted CA: -0.9
  - CA norm (from model): -0.6
  - CA gap: -0.2
  - o/w Policy gap: -1.7
  - Assumed semi-elasticity: 0.15
  - REER gap 1/: -1.3 (EBA methodology for 2023)
  - Additional REER gap model values shown: -6.9, -16.5
  - 1/ Model results from the EBA methodology for 2023.

### Real Exchange Rate (REER)
- Background:
  - Pakistan’s REER depreciated 5.8 percent in FY23 and 1.2 in FY22 (in contrast, the REER had appreciated 2 percent in FY21).
  - The change in the 2023 REER reflects a trade-weighted nominal depreciation of about 26.5 percent, foreign inflation of around 7.5 percent among Pakistan’s trading partners, and domestic inflation of 29 percent.
  - This trend reversed during the first half of FY24, with the REER appreciating about 10 percent.
  - During the second half of the fiscal year, the REER appreciated an additional 2 percent (as of May 2024).
- Assessment:
  - Staff’s assessment places the FY23 REER gap at -1.3 percent using the EBA CA model, based on a semi-elasticity of 0.15 of the REER gap with respect to the CA gap.
  - Staff continues to highlight the importance of exchange rate flexibility, which would contribute to maintaining the country’s external position broadly in line with the level implied by medium-term fundamentals and desirable policies.

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - The financial account posted a deficit of US$1.6 billion in FY23, driven primarily by government debt repayments: general government amortizations exceeded disbursements by US$2.9 billion.
  - These flows were partially offset by US$960 million in “Other investment assets” of the general government.
  - Net portfolio investment totaled just over US$-1 billion.
  - Net FDI reached US$670 million.
  - In previous years, the financial account remained in positive territory, averaging US$9.1 billion over FY19-22, driven primarily by disbursements to the general government (and to monetary authorities in the specific case of FY19).
  - Pakistan’s international financial integration remains limited, with a normalized Chinn-Ito Index of 0.16 placing the country at the 25th percentile of the world sample in terms of capital mobility, a score that has remained unchanged over the past five years.
- Assessment:
  - Authorities have been proactive in their intent to phase out previously existing exchange restrictions and multiple currency practices, but there is still space for additional reforms.
  - The EFF will support further efforts in FX market development, including a revised regulatory regime for exchange companies and the continued facilitation of clearance for dividend/profit payments on foreign investment.

### FX Intervention and Reserves Level
- Background:
  - Gross reserves decreased sharply during FY23, totaling US$4.5 billion (about 1.3 percent of GDP, or 0.8 months of imports) in contrast to US$9.8 billion in FY22 and US$17.2 billion in FY21.
  - More recently, reserves have gradually recovered, reaching US$9.3 billion in June 2024.
  - In addition to spot FX interventions to accumulate reserves, the SBP has also gradually reduced its negative net forward position, from US$-4.5 billion in July 2023 to US$-3.4 billion by end-December 2023.
  - During 2024, SBP’s forward position has remained broadly unchanged.
- Assessment:
  - Pakistan’s gross reserves in 2023 reached 18 percent of the IMF’s (capital controls-adjusted) ARA metric, well below the normative adequacy range of 100-150 percent.
  - With the proposed EFF anchoring reserve accumulation efforts, gross reserves are projected to reach US$22.5 billion, or 72.7 percent of ARA.

*Annex IV. External Sector Assessment, from the provided IMF content unit.*

### introduction of additional import management measures, contributing to a “sudden stop” in

### The 2023–24 SBA and Main Lessons

### Background and disruption to 2019 EFF
- Introduction of additional import management measures contributed to a “sudden stop” in financing inflows (including delays in materializing the US$4 billion of new pledges), severe import compression, sharply rising inflation, and a GDP contraction. Attempts in February and May-June to agree on policies to resume the program were unsuccessful, and the EFF expired on June 30, 2023.
- Outcomes of the 2019 EFF:
  - Initial phase restored stability and anchored policy through the early phase of the COVID-19 pandemic.
  - Program failed ultimately to address Pakistan’s challenges, though some progress was made on parts of the structural agenda.
  - Key policy deviations and consequences:
    - Implementation of a highly expansionary budget in FY22.
    - Delay in energy tariff changes.
    - Absorption of exchange rate pressures via reserve sales.
    - Fiscal deficit widened as revenue mobilization disappointed.
    - Public debt (and energy sector CD) significantly exceeded projections.
    - Progress on exchange rate flexibility was unwound through large FX sales and later via exchange restrictions and moral suasion, deterring private inflows.
    - Reserves fell to precariously low levels; program reviews were not completed and the program went off-track.

### Authorities’ perspective on the 2019 EFF
- Authorities broadly shared staff’s assessment but noted:
  - Some policy decisions (e.g., expansionary budgets deviating from program goals) were taken in a challenging political context, complicating hindsight policy lessons.
  - Large external shocks affected outcomes: COVID-19, spillovers from the Russia-Ukraine war, and the 2022 floods.
  - The program contained an ambitious fiscal consolidation plan and a robust reform agenda with many structural benchmarks and was implemented by two consecutive administrations.
  - Several major reforms were achieved, including:
    - Introducing automatic quarterly tariff adjustments.
    - Moving towards a primary surplus.
    - Promulgating the SOE Act.
    - Protecting the most vulnerable through BISP spending.
  - The PDM government took prior actions for the ninth review of the EFF that demonstrated political commitment and provided the basis for the 2023 SBA, though the ninth review could not be completed for technical reasons.

### Objectives and modalities of the 2023–24 SBA
- Objectives:
  - Anchor policy efforts to restore stability amid acute external financing pressures, minimal reserves, misaligned domestic policies, and elevated political tensions with elections initially scheduled for late 2023 and later for early 2024.
  - Provide a framework for official partners to disburse committed financing.
  - Four pillars:
    1. An appropriate FY24 budget to support needed fiscal adjustment and achieve a 0.4 percent primary surplus.
    2. Return to a market-determined exchange rate and proper functioning of the FX market to absorb BOP pressures and eliminate FX shortages.
    3. Adequately tight monetary policy to support disinflation and anchor expectations.
    4. Continue structural efforts to strengthen energy sector viability, SOE governance, and the banking sector, and to build Pakistan’s climate resilience.
- Modalities:
  - A 9-month SBA approved on July 12, 2023, with access of SDR 2,250 million, or 110.8 percent of quota (about US$3.0 billion).
  - SDR 894 million available upon approval; the remainder subject to quarterly reviews based on September and December test dates.
  - Prior actions included passage of a FY24 budget in line with program targets and withdrawing SBP circulars on import prioritization to return to a market-determined exchange rate.
  - Quantitative targets from the 2019 EFF were largely carried over; a new continuous SB monitored the premium between the exchange rate at exchange companies and in the interbank market.
  - The unfinished structural agenda from the EFF was carried over, with new benchmarks on climate, central bank financial controls, SOE governance and economic statistics.

### Implementation and outcomes of the SBA
- Implementation:
  - Program performance was generally strong; almost all quantitative targets and structural benchmarks were met.
  - The primary balance PC was missed by a minor margin at the first review, but authorities remained on track to meet the FY24 target. The deviation was driven by technical factors and higher provincial spending to clear commodity operation debt, offsetting overperformance on revenues.
  - The IT on energy circular debt (CD) was missed at the first review; CD subsequently stabilized via tariff adjustments (including two large gas tariff increases) and anti-theft measures in the power sector.
  - The continuous SB on the interbank-open market spread was missed at the first review; authorities introduced structural reforms to the exchange company sector, contributing to negligible premiums from September onwards.
  - Ten of the eleven other SBs were met; the SOE governance benchmark was still in progress at the time of the second review.
- Outcomes:
  - Narrow SBA objectives were largely achieved: the program stabilized the economy and rebuilt buffers, supported by strong policy efforts and a resumption of official inflows.
  - Latest estimates for FY24 aligned broadly with initial program forecasts: GDP growth and the primary surplus slightly exceeded initial projections; disinflation proceeded faster than anticipated.
  - Market sentiment improved: EMBIG spreads declined from over 3500 bps in June 2023 to around 700 bps by April 2024.
  - The program catalyzed a large increase in official financing flows; despite donor delays and limited private inflows, reserve targets were achieved thanks to sizeable interbank purchases by the SBP and a much smaller current account deficit.
  - FX market functioning improved after removal of the remaining MCPs and exchange restrictions, though scope remains to deepen the FX market and allow greater price discovery.

### Remaining challenges and authorities’ views on the SBA
- Remaining challenges:
  - Fiscal and external debt sustainability remain fragile with large financing needs and reserves still below desirable levels.
  - Continued fiscal adjustment is necessary to durably address debt sustainability and reduce crowding out.
  - Monetary policy needs to remain vigilant to ensure continued disinflation.
  - Ensuring exchange rate flexibility is critical to moderate BOP pressures and continue building reserves.
  - Energy sector: while recent tariff increases achieved cost recovery, regular adjustments and reforms to address costs must be sustained.
  - Structural reforms need acceleration: strengthen SOE governance, anti-corruption institutions, and climate resilience.
- Authorities’ view:
  - Authorities agreed broadly with staff’s assessment, noting the SBA served as an important policy anchor and reaffirming commitment to continue reforms to sustain SBA success.

### Main lessons from recent UCT arrangements
- Appropriateness of arrangements:
  - The arrangements chosen were appropriate given each request’s circumstances: 2013 and 2019 requests reflected protracted BOP needs and deep structural issues, warranting extended arrangements.
  - The 2023 SBA was unusually short as many underlying issues remained; authorities were not in a position to agree a medium-term policy agenda given approaching elections.
  - The Fund arrangement acted as an anchor for policies and financing, together with large financing commitments from bilateral partners, judged sufficient to restore stability and bring reserves back to manageable levels while leaving space for a new government to seek fresh ownership.
  - All three arrangements adopted quarterly reviews; this worked for the short SBA but did not prevent re-emergence of imbalances toward the end of the 2013 EFF, and in practice only the first review of the 2019 EFF was completed per the envisaged quarterly schedule.
- Need for sustained effort and ownership:
  - Sustained, continuous effort on sound policies is necessary for ongoing macroeconomic and financial stability; strong ownership is essential to implementation and financing.
  - 2013 and 2019 EFFs saw reform momentum fade; stability unraveled within months of policy discipline flagging.
  - The 2019 EFF unraveled after large deviations from program policies in mid-2021 and after the sixth and seventh-eighth reviews, underscoring the difficulty of success without continuous sound policy implementation.
  - Ownership under the 2023 SBA—mostly overseen by a caretaker government—was strong throughout, allowing significant stabilization and showing orthodox policies can work in Pakistan.
  - Strong prior actions can temporarily overcome weakened ownership, but without sustainable performance early success can be quickly undone; weak performance delays partner support and aggravates financing needs.
  - When deviations occur, it is important to pause and ensure policies and financing are adjusted to realign with original program objectives.
- Institutionalizing reforms:
  - Reforms must be institutionalized to durably address vulnerabilities. The 2013 EFF featured legislative actions but critical reforms (e.g., cost-recovery tariffs and SBP operational independence) were not institutionalized and soon broke down.
  - The 2019 arrangement had greater success, though entrenching a fully flexible market-determined exchange rate has been difficult.
- Evolving program conditionality:
  - Program conditionality must evolve to capture emerging risks and policy issues. Examples from past experience:
    - 2013 EFF: reform efforts waned, necessitating 13 waivers; stock target on SBP lending to government proved insufficient; lack of exchange rate flexibility generated imbalances.
    - 2019 EFF: sought clear public signal toward exchange rate flexibility, added targets on SBP borrowing flows (continuous) and stock of guarantees; design adjusted in 2021 for COVID-19 shock; when policies deviated, the Fund insisted on strong corrective measures; when slippages and financing deterioration made objectives impossible, the arrangement was allowed to expire.
    - 2023 SBA: conditionality recalibrated to stabilize the economy, including measures to contain the spread between interbank market and exchange companies.
  - Areas where conditionality for a new arrangement will likely need to evolve:
    - Greater role for provincial governments in ensuring general government surpluses through revenue mobilization and expenditure restraint; include provincial off-budget operations within fiscal (and guarantees) perimeter.
    - Tackle high-cost-side pressures in the energy sector alongside maintaining cost-recovery tariffs.
- Importance of coordination with development partners:
  - Close coordination with development partners is critical given Pakistan’s broad structural issues and the expertise required across institutions.
  - Critical reforms in energy, fiscal, social and SOE agendas were prepared with other IFIs, particularly the World Bank and Asian Development Bank.
  - Ongoing coordination and ensuring sufficient and timely financing from multilateral and bilateral partners will require continued strong program performance by the authorities and close engagement by the Fund.

*Source: Excerpt from Pakistan IMF report (selected sections on 2019 EFF, 2023–24 SBA, outcomes, authorities’ views, and main lessons).*

### 20.      Authorities’ Views. The authorities broadly shared the Fund's assessment of the main

### Authorities’ Views

### Main assessment and lessons from past programs
- The authorities broadly shared the Fund's assessment of the main lessons from the past three Fund programs, and the proposed areas of reform for the new engagement.
- They noted that while these programs were reasonably successful in stabilizing the economy, they were less successful in sustaining reforms and addressing underlying structural weaknesses, which will be essential to overcome macroeconomic imbalances and achieve high growth on a sustainable basis.
- The newly elected government is committed to implementing the reforms initiated under previous programs, which have helped build a foundation for the proposed EFF reform agenda.
- Note: Ratios in program figures are adjusted for the impact of the GDP rebasing completed in January 2022.

### Policy design and Pakistan-specific considerations
- The authorities observed that in some areas, greater consideration of Pakistan-specific factors when designing policies could enhance program effectiveness.
- Example given by the authorities: ensure that exchange rate flexibility is complemented by other reforms to address the shallow FX market and supply side constraints for exports.

### Federal-provincial fiscal relations
- The authorities argued that reforms to federal-provincial fiscal relations will need careful design and implementation, considering the delicate relationship between the provinces and the federal government.

### Key program-specific design items and prior actions (selected exact figures and measures preserved)
- Exchange rate policy: Net purchase of $125 million by the SBP in the foreign exchange spot market from July 1, 2013.
- Monetary/central bank targets and ceilings (selected exact stocks/levels):
  - Bring the government borrowing level from the SBP to PRs 2,150 billion.
  - Limit the stock of Net Domestic Assets (NDA) of the SBP to PRs 2,450 billion.
  - Bring net borrowing from the SBP to below PRs 1830 billion.
  - Bring the stock of NDA to or below PRs 2,652 billion by end-November 2015.
  - Bring the stock of NDA of the SBP to or below PRs 3,100 billion by end-August 2016.
- Fiscal targets for budget proposals:
  - Submit the FY2015/16 budget to the parliament, consistent with policies outlined in the MEFP and the program budget deficit target of 4.3 percent of GDP, including an adjuster of 0.3 percent of GDP (up to PRs 100 billion) for additional spending as defined in the TMU.
  - Submit the FY 2016/17 budget to parliament, consistent with the policies described in the MEFP and a budget deficit target of 3.8 percent of GDP.
- Debt management:
  - Provide Fund staff with a detailed quarterly financing plan for the coming 12 months and extend the existing in-quarter issuance plan to a rolling quarterly issuance program published every month for domestic public securities (including local Sukuk bonds).
- Fiscal structural measures:
  - Complete a calendar to eliminate the vast majority of SROs granting tax exemptions or concessions and convert the remainder into regular legislation.
  - Issue a presidential ordinance to limit the authority to grant tax concessions or exemptions, as specified in the TMU, and present it for parliamentary approval as part of the Finance Bill FY2015/16.
- Revenue administration and measures:
  - Issue 10 thousand notices based on large potential fiscal liabilities.
  - Require all government suppliers to be on the current list of active income and GST taxpayers to conduct business with government departments.
  - Raise the GST rate on petroleum products from 17 to 27 percent (as part of revenue measures listed).

### Program monitoring and outcomes (selected procedural/numeric items)
- For the 2023–24 SBA:
  - Average premium between the interbank and open market rate will be no more than 1.25 percent during any consecutive 5 business day period (continuous structural benchmark noted as Not Met at 9/30/2023 and Met at 12/31/2023).
  - At the First Review Board on January 11, 2024, waivers of applicability were granted for most end-December PCs (aside from the target on the SBP's net foreign currency swap/forward position), as they were not yet available, but these outcomes became available for the 2nd Review.

### Implementation record (high-level observations from authorities)
- The authorities acknowledged that previous programs helped stabilize key macroeconomic indicators (as shown across program figures for Current Account (% of GDP), GIR (US$ billions), Real GDP, Inflation, Net Capital Flows (% of GDP), REER/NEER indices, Revenue (% of GDP), Tax (% of GDP), Primary Balance (% of GDP), Fiscal Balance (% of GDP), Public Debt (% of GDP), External Debt (% of GDP)).
- They noted the challenge of sustaining structural reforms: implementation and depth of structural measures varied across programs and sectors (Central Bank, Financial Sector, Fiscal Governance, SOEs/Energy, Social Safety Nets, Economic Statistics, Other Structural), with a mix of Low, Medium, and High depth and mixed implementation outcomes (Met; Met with delay or after rephasing; Partially met, or met after modification; Not met, or cancelled; Not assessed).

*Source: Authorities’ Views (excerpt) — Pakistan; Figures and tables as presented in the source PDF.*

### 0.1 percent of GDP reduction in electricity subsidies, with total yield of 0.35 percent of GDP to assure compliance

### 0.1 percent of GDP reduction in electricity subsidies, with total yield of 0.35 percent of GDP to assure compliance

### Energy pricing and subsidy reform
- Reduce electricity subsidies by 0.1 percent of GDP as part of a broader package yielding a total of 0.35 percent of GDP to assure compliance with year-end fiscal targets.
- Develop and approve a three-year government plan to phase out Tariff Differential Subsidies (TDS), and implement the first step by:
  - notification of new tariffs for FY2012/13;
  - increasing the weighted average tariffs by 50 percent on industrial, commercial, bulk, and AJ&K consumers’ electricity consumption;
  - announcing a reduction of the subsidy on second group of consumers (as defined in the TMU) through increasing the weighted average notified tariffs by 30 percent effective from October 1st, 2013.
- Finalize determination and notification of electricity tariffs for FY2013/14.
- Notify new electricity tariff as determined by NEPRA for FY2014/15 to be effective from June 10, 2015; implement surcharges or similar measures consistent with:
  - budgetary allocation of 0.3 percent of GDP in electricity subsides; and
  - the power sector payables reduction plan as defined in the TMU.
- Adopt package of measures in the energy sector (2019–23 EFF prior actions):
  - implement a quarterly automatic tariff adjustment in the electricity sector by about 10 percent to generate Rs 150 billion in additional revenues;
  - notify FY 2020 gas tariff adjustment as proposed by the regulator to become effective on July 1st, 2019.
- Electricity price adjustments and rebasing actions noted for FY2020–FY2023, including specific kWh adjustments:
  - FY 2021 annual rebasing (AR) of 1.95 PRs/kWh and QTAs of 1.62 PRs/kWh;
  - combined FYs22–23 AR increases: PRs 3.50/kwh (first-stage on July 25, 2022), PRs 3.50/kwh (second-stage on August 1, 2022), and PRs 0.91/kwh (third-stage to be implemented on October 1, 2022);
  - full subsidy reform markup of PRs 0.20/kwh.

### Revenue, fiscal adjustment, and expenditure measures
- Implement a series of fiscal adjustment measures totaling 2 percent of GDP on an annualized basis (including those in the 2013/14 budget).
- Take measures to recover part of the GIDC proceeds with an estimated yield of 0.1 percent of GDP, focusing on areas where large collecting agents have already collected the GIDC in their price.
- Announce a rationalization plan for gas prices which will involve a levy to generate 0.4 percent of GDP fiscal savings by end-December 2013.
- Revenue measures and tax administration actions:
  - Increase issuance of first notices (u/s 114) to 75,000 and follow up with a second notice (u/s 122c) to 75 percent of those who did not respond satisfactorily to their first notice within 60 days by end-March, 2014;
  - Issue a provisional tax assessment to 75 percent of those who did not respond satisfactorily within 60 days to the second notice by end-March, 2014.
  - Eliminate exemptions and concessions granted through SROs for an amount consistent with the fiscal deficit reduction objective in the FY2014/15 budget.
  - Merge the NTN system covering 3.6 million individuals with the CNIC database that covers about 150 million people.
  - Prepare and submit draft legislation that will permanently prohibit the practice of issuing SROs that grants exemptions and loopholes.
  - Adopt a new audit policy moving towards risk-based auditing and put in place a comprehensive monitoring system for tax audits with quantitative and qualitative indicators.
- 2019–23 revenue measures included staged increases in the petroleum development levy (PDL) and removal of blanket power subsidy steps:
  - PDL on gasoline and diesel raised by PRs 8/liter;
  - Relief package reversal steps including elimination of post-tax fuel subsidies and the PRs 5/kwh blanket power subsidy by end-June 2022;
  - PDL increases: PRs 10/liter (petrol) and PRs 5/liter (diesel) on July 1, 2022 and August 1, 2022; monthly PDL increases of PRs 10/liter for petrol and PRs 5/liter for diesel beginning September 1, 2022, followed by increases of PRs 5/liter per month until PDL reaches PRs 50/liter in January 2023 (petrol) and April 2023 (diesel).

### Public enterprises, circular debt, and power sector arrears
- Improve power sector governance and reduce arrears:
  - Make Central Power Purchasing Agency (CPPA) operational by separating it from NTDC, hire key staff, issue CPPA rules and guidelines, and initiate the payment and settlement system.
  - Approval by the Cabinet of an updated Circular Debt Management Plan (CDMP) in line with international partners' advice.
  - Reduce CPPA-G payables to power producers through a payment up to PRs 180 billion with no more than 1/3 in cash and the remainder in debt instruments.
  - Enforce performance by setting quarterly loss-reduction, collection, and recovery targets consistent with the arrears reduction plan for each DISCO.
  - Initiate revenue-based load shedding in six remaining electricity distribution companies.
- Public enterprise reform and privatization steps:
  - Offer minority shares in United Bank Limited and Pakistan Petroleum Limited to domestic and international investors by end-June 2014.
  - Develop and approve PSE reform strategy for thirty firms among the 65 PSEs approved for privatization by the Council of Common Interest (CCI).
  - Privatize 26 percent of PIA's shares to strategic investors.
  - Make CPPA operational and initiate payment/settlement systems.
  - Submit to Parliament a new State-Owned Enterprise law to improve governance and transparency.

### Governance, legal, and anti-corruption measures
- Enact the Gas (Theft Control and Recovery) Ordinance 2014.
- Enact amendments to the Pakistan Penal Code 1860 and the Code of Criminal Procedures 1898.
- Enact amendments to the State Bank of Pakistan Act to give SBP autonomy with price stability as its primary objective, strengthen governance and internal control framework, and implement related internal operation improvements:
  - reestablish an advisory monetary policy committee;
  - establish a Board committee to oversee risk management;
  - begin publishing summaries of monetary policy proceedings.
- Enact legislative and regulatory measures for financial integrity and AML/CFT:
  - Enact the Deposit Protection Fund Act;
  - Enact the Securities Bill;
  - Enact the Credit Bureau Act;
  - Submit amendments to the Anti-Money Laundering Act (AMLA) and adopt amendments to include serious tax crimes and the definition of politically exposed persons.

### Central bank operations, financial sector, and safeguards
- SBP operational and governance reforms:
  - Improve internal operations, risk oversight, and reserves management oversight (Investment Committee to meet at least four times per year).
  - Issue an executive order to provide financial guarantee to the SBP for losses not covered by general reserves and allow the SBP board discretion in profit distribution rules.
  - Announce a time-bound plan to improve the SBP's interest rate corridor by setting the policy rate between the floor and ceiling rates.
- Financial sector restructuring and resolution:
  - Prepare detailed plans to achieve compliance of all banks that fall below minimum capital adequacy, including plans for recapitalization, consolidation, or liquidation of 9 banks that fall below the minimum capital requirement but not CAR.
  - Adopt amendments to align early intervention, bank resolution, and crisis management arrangements with international good practices.

### Debt management, transparency, and statistical/administrative reforms
- Debt management actions:
  - Approve an administrative order to consolidate responsibilities of public debt management in the debt management office.
  - Reorganize the Debt Policy Coordination Office as a middle office responsible for updating the MTDS and monitoring implementation.
  - Appoint risk management staff (director and two staff) and begin publishing quarterly debt management risk reports covering all government liabilities including guarantees.
  - Submit amendments to the Fiscal Responsibility and Debt Limitation Act as described in paragraph 18 of the MEFP to the National Assembly.
- Fiscal transparency and monitoring:
  - Prepare and submit draft legislation for a PPP framework to the National Assembly.
  - Hire a professional audit firm to conduct a technical and financial audit of the system to identify the stock and flow of payables at all levels of the energy sector (including Power Sector Holding Company Limited).
  - Central Monitoring Unit (CMU) to issue periodic reports on SOE performance using latest available data to the Federal Government.
- Economic statistics and public financial management:
  - Compilation and dissemination of Quarterly National Accounts for FY24Q1 and revised annual estimates for FY23 (structural benchmark).
  - Presentation of the federal government mid-year budget review report to the National Assembly in line with the PFM Act.

*Source: Pakistan — IMF program documentation and structural benchmarks as presented in the provided content.*

### Annex VI. From Boom-Bust to Stabilization: Monetary Policy

### Annex VI. From Boom-Bust to Stabilization: Monetary Policy and Business Cycles in Pakistan

### Overview and objective
- Pakistan has faced recurrent boom-bust cycles with balance of payment crises that disrupt growth, undermine confidence, and worsen living standards.
- This annex investigates the association between monetary stimulus, growth, and inflation to inform strategies for economic stability.
- The analysis examines the impact of discretionary monetary policy on inflation and growth cycles following the indicators in Hayat and others (2016).

### Methodology: Discretionary policy Indicator (DI)
- DI represents low frequency movements extracted from broad money (M2) through Hodrick-Prescott filter.
- DI measures the use of monetary discretion by the central bank to stabilize money supply for a desired path in inflation and growth, excluding unpredictable exogenous shocks to M2.
- Hayat and Hanif (2020) show DI remains key in assessing the impact of monetary policy on inflation and economic activity both before and after adoption of the policy rate as the monetary policy instrument.
- Cross-correlations examined: DI with inflation indicator (II) and DI with growth indicator (GI) over 1961–2023; significance at 5 percent highlighted.

### Empirical findings
- Discretionary monetary policy induces boom-bust inflation cycles and significantly hinders economic growth.
- From cross-correlations (DI-II, DI-GI, and II-GI):
  - A discretionary M2 impulse (DI) is associated with higher inflation (DI → II).
  - Low-frequency movements in M2 (DI) are not associated with low-frequency growth directly (money neutrality: DI × GI no direct positive association).
  - Associated inflationary pressures (II) are detrimental to growth (II → GI negative association).
- These findings support strengthening rules in the monetary policy framework to limit discretionary M2 impulses.

### Policy implications and recommendations
- Strengthen the role of rules in the monetary policy framework to reduce discretionary M2 impulses that generate inflationary boom-bust cycles.
- Maintain appropriately tight monetary policy to re-anchor inflation expectations and manage disinflation toward targets.
- Cement FX flexibility, continue rebuilding international reserves, and preserve financial stability alongside monetary tightening.
- Coordinate fiscal consolidation and structural reforms to reduce the need for discretionary monetary accommodation.

### Contextual program targets and macro developments (from accompanying MEFP / Letter of Intent)
- Recent policy achievements and program stance:
  - Achieved a 0.9 percent of GDP primary surplus in FY24 (Pakistan’s first primary surplus in 20 years).
  - Consistently tight monetary policy to moderate inflation.
  - Progress toward a fully-functioning FX market and a flexible exchange rate.
  - Doubling of international reserves.
  - Sizeable electricity and gas tariff increases to prevent further fiscal liabilities.
- Key quantitative developments:
  - Real GDP growth: provisional FY24 estimate 2.4 percent.
  - Headline CPI inflation: 12.6 percent (yoy) in June.
  - Core inflation: 12.2 percent (yoy) in urban areas and 17.0 percent (yoy) in rural areas.
  - International reserves: US$9.4 billion at end-June 2024 (from US$4.4 billion in June 2023).
  - Current account: US$ -464 million in July–May FY24.
  - Current account projections: FY24 deficit projected at 0.1 percent of GDP; expected to increase to close to 1 percent of GDP in FY25 and remain around this level over the medium term.
- Program targets and requests:
  - Increase tax revenues by 3 percentage points of GDP over the program.
  - FY25 budget targets an underlying 1.0 percent primary surplus (2.0 percent in headline terms).
  - Request for a 37-month Extended Fund Facility (EFF) equivalent to SDR 5,320 million (equivalent to 261.9 percent of Pakistan’s quota, or about US$7 billion).

*Source: Annex VI. From Boom-Bust to Stabilization: Monetary Policy and Business Cycles in Pakistan; accompanying Letter of Intent and Memorandum of Economic and Financial Policies (excerpts).*

### 4.      Risks to the baseline remain very high. We recognize that implementation delays or

### 4.      Risks to the baseline remain very high.

### Major risks identified
- Implementation delays or backtracking on crucial policy and structural reforms (particularly on exchange rate policy, tax reforms and the energy sector) would:
  - compromise the improving growth outlook,
  - impede the rebuilding of reserves,
  - jeopardize debt and external sustainability.
- Fiscal slippages would increase pressures on domestic banks to finance the government and endanger the return to macroeconomic stability.
- Delays to financing from multilateral and bilateral partners would put pressure on reserves and the exchange rate and could cause an adverse shift in market sentiment.
- External conditions could be strained by an intensification of geopolitical conflicts, resurgent commodity prices, and a further tightening in global financial conditions.

### Economic Program — Fiscal Policy objectives
- Fiscal strategy focus:
  - significantly increasing revenue to ensure debt sustainability and support human capital development and social protection.
  - continue fiscal consolidation that commenced in FY24 (which delivered a primary fiscal surplus of 0.9 percent of GDP).
  - bring primary surplus to 2.0 percent of GDP by FY27.
  - steadily reduce debt to under 60 percent of GDP by 2029.
  - create fiscal space for priority spending on health, education, infrastructure, and targeted programs for social protection.
- Revenue-based consolidation target:
  - increase net tax revenues by 3 percent of GDP (after allowing for some reduction in distortionary trade and indirect taxation),
  - bringing tax revenue to 13.7 percent of GDP,
  - and achieve a primary fiscal surplus of 2.0 percent of GDP during the program period.

### FY25 budget (critical initial step)
- The budget targets an underlying primary surplus of PRs 1,177 billion (1.0 percent of GDP) and was passed on June 28, 2024.
- Salient measures aim at boosting federal revenue collection by PRs 1,723 billion, especially by:

  - Enhancing direct taxes (PRs 240 billion):
    - raise withholding tax collected by manufacturers from distributors and wholesalers from 0.2 percent to 0.5 percent;
    - raise withholding tax collected by manufacturers, dealers, and wholesalers from retailers from 1 percent to 1.5 percent for non-filers under advance tax collection at source;
    - expand scope of tax collection at source specified above to all sectors;
    - increase withholding tax under sections 236C and 236K in progressive slabs according to value of property: up to 50 million, 50 to 100 million, and more than 100 million - ATL 3 , 3.5, 4 percent, respectively; and non-ATL 10 percent for section 236C and 12 percent, 16 percent, and 20 percent for 236K. Rates for late filers will be 3 percentage points higher than for regular timely filers;
    - apply division 1 of part 1 of the first schedule slab rates on capital gains from immovable property and securities purchased from July 1, 2024 for non-filers (minimum rate of 15 percent) and 15 percent for filers;
    - transform withholding taxes on new motor vehicle registration to an ad-valorem tax;
    - eliminate the 1 percent concessional rate under section 153.1.a on distributors of cigarettes and pharmaceuticals;
    - increase income tax on dividend income from mutual funds from 15 percent to up to 25 percent;
    - cap the exemption granted by a commissioner to 80 percent of the corresponding withholding tax;
    - cap the deduction for advertising expenses on brands allocated to associates, where royalty for those brands is also paid to the associate, to 75 percent of the total value;
    - modify the income tax calculation method for developers and builders by calculating the tax base as 10, 15 and 12 percent of turnover for builders, developers, and person undertaking activities of both builders and developers respectively.

  - Increasing PIT and CIT yield (PRs 357 billion):
    - rationalize tax rates for individuals and reduce number of rate slabs to five for salary (SI) and non-salary (NSI) individuals;
    - increase rate for the high income slab for NSI (earners above PRs 5.6 million) to 45 percent;
    - lower the upper-threshold for the fifth slab for SI to an annual income of PRs 4.1 million;
    - amend Chapter III of the ITO (Part IX and X) to eliminate exemption on subsidies given by the Federal Government;
    - bring exporters into the regular tax regime.

  - Transforming the sales tax (GST) (PRs 286 billion):
    - tax most goods at the standard rate;
    - certain education, health, and agricultural input products taxed at reduced rates of 5 and 10 percent;
    - retain exemptions only for essential food, health items, products acquired by charitable hospitals (excluding donations from individuals and companies), textbooks, POL, fertilizers and pesticides and those in compliance with international and bilateral agreements;
    - terminate the Exporters Facilitation Scheme; exporters will use the credit tax regime to claim VAT credits on locally purchased inputs.

  - Improving revenue administration (PRs 250 billion expected, including nascent retailers' scheme yields).

  - Expanding FED coverage and rate enhancement (PRs 413 billion):
    - introduce a FED on the first sale of property that will work under the VAT system, with tax credits allowed;
    - increase FED on cement from PRs 2 per kilogram to PRs 4 per kilogram;
    - introduce a PRs 44 per gram FED on acetate tow;
    - introduce a PRs 15 per kilogram FED on sugar to manufacturers;
    - increase FED on economy class tickets from PRs 5,000 (set in 2014) to PRs 12,500, while excluding PRs 7,500 for flights taken by laborers with final destinations in any of the GCC states;
    - increase FED on business and first class tickets by 40 percent;
    - introduce an FED of 5 percent on lubricants;
    - apply the same rate of excise on locally manufactured cigarettes (both tier-I and tier-II brands), regardless of whether the manufacturer is local or foreign;
    - tax e-cigarettes and nicotine pouches similarly to imported cigarettes;
    - for FY26 budget: introduce a 5 percent increase in the FED on fertilizer and a 5 percent FED rate on pesticide (end-June 2025 structural benchmark).

  - Rationalizing tariffs and eliminating concessions on customs duty, additional customs duty, and regulatory duty (PRs 65 billion) by withdrawing exemptions and concessionary rates for imports including:
    - home appliances;
    - fresh and dry fruits except apples from Afghanistan;
    - ground nuts, margarine, silver cans, lollipop sticks for the food and confectionary sector;
    - electric vehicles with value exceeding US$50,000;
    - and other items per Tariff Policy Board recommendations.

  - Other miscellaneous compliance measures (PRs 157 billion) including:
    - setting a minimum import value for specific items for withholding tax and GST collection and converting the withholding tax into a minimum tax;
    - introducing a withholding regime to prevent fake and fraudulent invoices;
    - improving the cross-adjustment system of the sales tax with the provinces;
    - reevaluating property valuation tables to align with market rates.

  - Payment of GST credit claims to companies commercializing POL products:
    - outstanding arrears amount to PRs 80 billion, to be cleared within this fiscal year;
    - the Finance Division will transfer PRs 35 billion to partially cover the payment.

  - No income tax exemption on income from livestock activities.

### Institutional and provincial measures
- Improve information sharing:
  - FBR to share all requested information specified under MOUs with revenue authorities of each of the four provinces, including on Agriculture Income Tax (AIT) and GST services credits claims, ensuring a delay of no more than one week.
- Provincial tax reforms:
  - the four provinces will amend their AIT regimes to fully align with federal personal income (small farmers) and corporate income (commercial agriculture) tax regimes by end-October 2024 (structural benchmark);
  - each province will begin taxation of agricultural income under the new regime from January 1, 2025, with collection for second half of FY25 agricultural income in July 2025;
  - FBR to provide technical assistance as needed;
  - provinces agreed to transition the services GST from a positive list to a negative list approach effective from start of FY26.

### Expenditure and contingency measures
- Contain non-priority spending while protecting social spending:
  - allow base public wages and pensions to grow in line with the average of the last two years’ CPI inflation, while ensuring public wage and pension bill as a percentage of GDP will not increase;
  - increase generosity of the BISP unconditional cash transfer (UCT) Kafaalat program in FY25;
  - limit growth of budgeted energy subsidies to no more than the GDP growth;
  - create fiscal room to boost provincial education and health expenditure, including through social assistance programs.
- Federal committee chaired by the Finance Minister to prepare a report on actionable items to reduce the footprint of the federal government in line with the 18th amendment (end-September 2024 structural benchmark).
- Emergency contingency funds:
  - federal government to allocate contingency funds totaling 0.3 percent of GDP, equivalent to PRs 348 billion;
  - provincial governments agreed to work towards allocating 1 percent of their expenditures for emergency contingencies in FY26.

- Contingent revenue measures (trigger: 3-month rolling average revenue collection shortfall by 1 percent; measures evaluated in consultation with IMF staff):
  - increase advance income tax on import of machinery by 1 percentage point, expected collection of PRs 2 billion per month;
  - increase advance income tax on import of raw materials by industrial undertakings by 1 percentage point, expected collection of PRs 3.5 billion per month;
  - increase advance income tax on import of raw materials by commercial importers by 1 percentage point, expected collection of PRs 1 billion per month;
  - increase withholding tax on supplies by 1 percentage point, expected collection of PRs 1 billion per month;
  - increase withholding tax on services by 1 percentage point, expected collection of PRs 0.5 billion per month;
  - increase withholding tax on contracts by 1 percentage point, expected collection of PRs 0.5 billion per month;
  - increase FED on aerated and sugary drinks by 5 percentage point, expected collection PRs 2.3 billion per month.

- Prudent use of SBP dividends windfall:
  - utilize windfall from SBP dividends exceeding 1.0 percent of GDP to cover interest payments and reduce credit requirements, mitigating crowding out of the internal market.

### Program safeguards and commitments to ringfence fiscal program
- Commitments reiterated:
  - not to allow supplementary grants for any additional unbudgeted spending over the parliamentary approved level in FY25, except in cases of severe natural disasters;
  - seek ex-ante approval from the National Assembly for any expenditures exceeding the budget appropriation (continuous structural benchmark);
  - not to launch any new tax amnesties or issue any new preferential tax treatment in FY25 including through the budget or Statutory Regulatory Orders (SRO) (continuous structural benchmark);
  - signature of MoUs with each province on their commitment to achieving an end-FY25 fiscal position consistent with the FY25 general government headline primary balance goal of PRs 2,435 billion and their commitment to increase own revenue mobilization;
  - continuing focus on critically urgent energy sector policies;
  - commitment not to introduce any fuel subsidy, or cross-subsidy scheme, in FY25 and beyond.

### Medium-term commitment
- Beyond FY25, continue efforts to build up tax revenues to ensure viability and greater fiscal space for development needs and to increase tax to GDP ratio.

*Source: 1pakea2024003-print-pdf — Chapter text provided.*

### 13.7 percent while achieving a primary surplus of 2.0 percent of GDP by FY28. Given Pakistan’s low

### 13.7 percent while achieving a primary surplus of 2.0 percent of GDP by FY28. Given Pakistan’s low

### Fiscal consolidation and tax strategy
- Aim: achieve a net 3 percentage points of GDP increase in tax revenues by the end of the program.
- Primary surplus target: 2.0 percent of GDP by FY28.
- Approach: primarily revenue-based consolidation; some tax rate increases might be unavoidable.
- Focus: bring under-tax sectors into the tax net and bridge the compliance gap.

### Tax policy reforms (specific measures)
- Enhance Annual Tax Expenditure Report with a chapter evaluating costs and benefits of tax incentives.
- Assess current tax credits and exemptions under the Income Tax Ordinance (ITO) and repeal those whose costs outweigh benefits.
- Amend the ITO to ensure equitable taxation of all income sources.
- Repeal remaining exemptions for donations and non-profit organizations in the Second Schedule of the ITO, making them eligible for tax credits instead.
- Introduce a single turnover-based registration threshold for all businesses by FY27; businesses exceeding this threshold will be required to register for both income tax and sales tax.
- Streamline GST: in FY26 aim to establish a unified reduced rate; reclassify all products taxed in FY25 from 5 percent GST to the 10 percent category in FY26.
- Persist in transforming the GST into a broad-based VAT.

### Revenue administration reforms
- Full implementation of compliance risk management measures in Large Taxpayers Units (LTU) in Islamabad, Karachi, and Lahore Regional offices by December 31, 2024 (structural benchmark).
- Integrate all data shared by the 145 agencies under MOUs signed in accordance with the documentation law by no later than December 2024.
- Continue implementation of the Compliance Improvement Plan (CIP).
- Expand Tajir Doost scheme to an additional 36 cities, bringing the total number of cities covered by the scheme to 42; an SRO to extend the scheme to these 36 cities will be issued no later than July 2024, with mandatory collection starting in FY25Q1.
- Continue implementation of digital invoicing and track-and-trace; amend the protocol to incorporate aggregation to facilitate comprehensive monitoring across the supply chain.
- Review Pakistan’s tax penalty regime across various tax types to inform design of a General Anti-Avoidance Rule (GAAR).

### Tax Policy Office (TPO)
- Establish a TPO under the direct oversight of the Minister of Finance by FY25Q1.
- Role: allow FBR to sharpen focus on revenue collection while TPO specializes in tax policy analysis.
- Equip TPO with capabilities in data modeling and data analytics, revenue forecasting, and tax expenditure review assessments.
- Establish an advisory board for tax policy issues comprising external experts and stakeholders.

### National Fiscal Pact and intergovernmental rebalancing
- Agreement to sign a National Fiscal Pact by end-September 2024 (structural benchmark).
- Devolve some federal spending responsibilities to provinces in line with 18th constitutional amendment allocations, including additional contributions for higher education, health, social protection, and regional public infrastructure investment.
- Provinces to increase own tax-collection efforts in sales tax on services, property tax, and agricultural income tax.

### Privatization agenda
- Plans to privatize PIA (anticipate completion of the transaction by end-August 2024), the Roosevelt Hotel, First Women’s Bank, HBFC, and several DISCOs and GENCOs (¶24c).
- Prioritize privatization of commercial SOEs, with highest priority on profitable commercial SOEs, to reduce government footprint and attract investment.

### Public Financial Management (PFM) enhancements
- Improve budget practices:
  - Start producing and publishing quarterly budget performance reports in FY25.
  - Integrate budgeting processes for development and recurrent expenditures.
  - Advance issuance of the budget circular by one month starting in the FY26 budget preparation process.
- Public Investment Management:
  - Continue implementation of PIMA and C-PIMA action plans.
  - By December 2024, produce a report reviewing all investment projects in the Public Sector Development Program (PSDP).
  - Publish on website the criteria for project selection including scorecard, weightings, methodology, and an annual limit on total size of new projects entering PSDP portfolio (end-January 2025 structural benchmark).
  - Strengthen governance and risk management frameworks for Public Private Partnerships (PPP), subjecting them to same project selection criteria.
- Cash Management:
  - Updated "Cash Management & Treasury Single Account (TSA) Rules" in April 2024.
  - Continue to expand coverage of sweeping arrangements and update inventory of bank accounts of government offices and public entities.

### Increasing spending transparency and procurement
- Use electronic Pakistan Acquisition and Disposal System (e-PADS) for public procurement at federal and provincial levels.
- e-PADS integration status: since 2023 launch, 38 of the 43 federal ministries and 342 attached departments integrated; two of the four provinces using the system and two in process of integrating.
- Out of 295 planned procurement contracts (amounting to PRs 4 billion) at the federal level in e-PADS, 141 contracts (amounting to PRs 70 million) have been completed.
- PPRA will report quarterly on public procurement made through e-PADS.
- Beneficial ownership information publicly available for procurement contracts above PRs 50 million.
- External audit of e-PADS to be considered by the Auditor General of Pakistan in FY25-26.
- Memorandum of understanding to be signed by end-December between PPRA, Competition Commission and National Accountability Bureau for cooperative information-sharing within e-PADS.

### Debt management
- Priority: sustain progress in lengthening domestic maturities amid high debt vulnerabilities and elevated gross financing needs.
- Commitment supported by an IT on the average time to maturity (ATM) of the local currency domestic debt stock.
- Starting in FY25, DMO to publish one quarter-ahead issuance plans, consistent with annual borrowing plan, and conduct ex-post analysis to explain plan deviations.
- Assess by end-FY25 whether continued operations of the Central Directorate for National Savings (CDNS) are consistent with debt management objectives and financial development strategy (¶18), especially cost-effectiveness and possible crowding out.
- Adhere to a QPC on issuance of government guarantees, including guarantees for SOE’s commodity operations.
- No new fiscal incentives or guaranteed returns (in any currency) to firms or any investment project.

### Poverty reduction and social protection (BISP)
- FY25 budget includes a PRs 599 billion BISP allocation, equivalent to 0.5 percent of GDP; this is a 27 percent nominal increase (0.1 percentage point of GDP) relative to FY24.
- Increase in unconditional cash transfer (UCT) Kafaalat benefits:
  - Target: transfer gradually increases toward 15 percent of average household consumption for the bottom quintile.
  - Adjust for anticipated annual inflation in 2024 (end-January 2025 structural benchmark).
  - Increase quarterly benefit from PRs 10,500 to PRs 13,500 beginning in January 2025.
  - Plan to bring remaining 500,000 households (of a total of 9.8 million) registered in BISP NSER database and eligible but not enrolled into UCT during this fiscal year; in case of savings, seek to add additional families.
- Commitments going forward:
  - Continued annual inflation adjustments for UCT benefits.
  - Readjust UCT benefits upon release of any new household surveys to maintain equivalence to 15 percent of bottom quintile’s consumption.
- FY25 budget allows for PRs 500 per quarter increase in CCT benefits.
- Administrative reforms:
  - Keep NSER live and covering all of Pakistan’s poor; keep BISP enrollment open.
  - Administer regular re-declaration of beneficiaries on a three-year cycle.
  - Pilot new electronic payment model rolled out in two cities; gradual expansion starting January 2025.
  - Targets: enroll 1 million new children in education CCT program and 100,000 new families in health and nutrition CCT program by June 2025.
  - Develop fiscal contingency reserves and enhance BISP systems to disburse emergency cash transfers for adverse events.

### Rebuilding non-BISP health and education spending
- FY25 budget includes an increase in health and education spending to PRs 2,882 billion, equivalent to 2.4 percent of GDP, representing a partial recovery to previous human capital spending levels.

### Monetary, exchange rate, and financial sector policies
- Medium-term targets and frameworks:
  - Anchor inflation within medium-term target range of 5-7 percent.
  - Maintain a flexible exchange rate to rebuild FX reserves and buffer shocks.
  - Strengthen financial sector policies to support private sector growth and risk sharing.
- Monetary policy stance:
  - Remain appropriately tight to guide down inflation.
  - Maintain positive policy rates in real terms; data-dependent approach to lowering policy rate, which is expected to proceed very gradually.
  - Advance work to align inflation expectations surveys with best practice by end-FY25.
  - Consider issuing a dedicated monetary policy report to strengthen communication.
- SBP operational commitments:
  - Refrain from involvement in decisions allocating credit and from sectoral disbursement targets.
  - Assess subsidized loan schemes and prepare action plan for better targeting by end-December 2024, with implementation to commence by end-March 2025.
  - Aim to remove schemes from SBP’s balance sheet as soon as feasible provided transition conditions are met; SBP committed not to introduce any new refinancing schemes.
- Strengthening risk mitigation in monetary operations:
  - Revise regulations and methodologies, including enhanced collateral policy and requiring counterparties to be financially sound, with Fund support (end-December 2024 structural benchmark).
  - Implement adopted measures by end-September 2025 (structural benchmark).
  - Refrain from outright secondary market purchases of government securities or from further extension of maturities of securities held by SBP.
- Foreign exchange market policy and transparency:
  - Maintain flexible exchange rate and price discovery in interbank market.
  - Limit FX sales to episodes of disorderly market conditions; do not use to prevent trend depreciation driven by fundamentals.
  - Commit to limiting net FX sales to banks to at most balancing FX purchases within each quarter.
  - Consult with the Fund if gross sales exceed US$200 million in any rolling 30-day period.
  - From July 2024, begin publication of (i) SBP’s monthly FX interventions (with a three-month lag); and (ii) semiannual announcement of six month-ahead gross reserve target and FX debt service of the government over the corresponding period.
  - Maintain exchange system free from restrictions on current account transactions in line with Article VIII commitments.
  - Collect monthly information from banks on stock of dividend/profit payments pending execution which have cleared regulatory processes.
  - Medium-term agenda to upgrade FX market framework and infrastructure, including: (i) revised regulatory regime for Exchange Companies; (ii) an FX swap mechanism for Islamic institutions; and (iii) a local USD clearing mechanism.

*Source: IMF content unit 1pakea2024003-print-pdf*

### 15.      Enhancing financial sector stability is a key component of our program. We recognize

### 15.      Enhancing financial sector stability is a key component of our program. We recognize

### Financial sector stability — supervisory and crisis-management actions
- The SBP stands ready at all times to exercise its regulatory and supervisory mandate resolutely and the authorities continue to closely monitor the sector and stand ready to act decisively to safeguard its resilience.
- Upgrading the crisis management framework:
  - Draft legal amendments reflecting IMF TA advice were submitted to the parliament in January (Senate).
  - Expectation to obtain parliamentary approval of the amendments in a manner that preserves the integrity of the draft by end-October 2024 (structural benchmark).
- Addressing undercapitalized financial institutions:
  - Implementing the cabinet-approved wind-down plan of the undercapitalized public bank: all branches closed but one, and around ninety-five percent of the deposits repaid.
  - Government approved a scheme to assume costs of the retrenchment of staff.
  - SBP plans to put the legal entity into liquidation by end-December 2024, at the latest.
  - For two undercapitalized private banks: unless (i) these banks are fully recapitalized by end-October 2024; or (ii) a legally binding agreement is in place by end-October 2024 towards a merger with other banks or with a new sponsor that would achieve full recapitalization by April 2025, the decision will be taken to place these entities under resolution (structural benchmark end-November 2024).
  - Ongoing prompt supervisory action to address any additional banks which may become undercapitalized.
  - Microfinance bank sector: currently, 6 microfinance banks, out of 12, are undercapitalized; engaged with owners and potential investors to address capital shortfalls.
  - Deposit insurance system will not be extended to the microfinance sector until issues are addressed to the satisfaction of the supervisor and other preconditions are met.
  - Discussions with development partners to develop schemes to help ensure longer-term sustainability of the sector.
- Reduction of Non-Performing Loans (NPLs):
  - SBP adopted a comprehensive strategy to address high levels of NPLs.
  - Implementation to start within the next 3 months by requiring bank-specific plans for reducing NPLs, asking banks to charge-off fully provisioned NPLs and encouraging banks to transfer non-performing assets to corporate restructuring companies.
- Effective implementation of AML/CFT:
  - National AML/CFT Authority established as focal point for cooperation and oversight of the national AML/CFT strategy.
  - Ensure coordination among agencies (Financial Monitoring Unit, FBR, National Accountability Bureau, and Provincial Anti-Corruption Establishments) and stakeholders, and address predicate crimes identified in the 2023 National Risk Assessment (NRA).
  - SBP has imposed nominal sanctions amounting to PRs 242 million in fines and other administrative actions (warnings and forfeiture of bonuses) against several banks for TBML violations involving solar panels; SBP is revising its risk-based supervisory framework to align with the NRA.
  - With ADB support, FMU strengthening financial intelligence capacities within its GoAML system to identify risks of TBML.
  - Pursue transparency of beneficial ownership information consistent with FATF standards; SECP compliance with beneficial ownership information by registered companies now at 30 percent and continuing efforts to ensure risk-based verification.

### Financial sector development and inclusion targets
- SBP’s 2023-28 Strategy prioritizes inclusive and sustainable access to financial services through innovative digital solutions.
- National Financial Inclusion Strategy objectives:
  - Bring financial inclusion up to 75 percent over the next 5 years (from 60 percent currently).
  - Lift financial inclusion of women to at least 60 percent (from 43 percent currently).
  - Complement the strategy with a time-bound action plan.
- Digitalization and payments infrastructure:
  - Complete digitalization of government payments to be pursued by SBP and federal and provincial governments.
  - Promote digitalizing public records to enhance access to credit for underserved segments.
  - Targets and modernization:
    - Complete rollout of the micropayment system RAAST by end-June 2025.
    - Advance further integration of micropayment systems with other countries to reduce costs to consumers.
    - Modernize the Real Time Gross Settlement (RTGS) system and integrate it with the Central Securities Depository (CDS).
- SECP five-year strategic plan to develop the insurance sector; insurance penetration rate remains below 1 percent.

### Public sector role in the financial ecosystem
- Redouble efforts to liquidate or transfer SBP’s ownership interests in financial institutions to government by end-FY25 to avoid conflicts of interest.
- Development Financial Institutions (DFIs):
  - Concern that most DFIs are not primarily focused on development finance and have largely invested in government securities.
  - Plan for consolidation of the sector and redesign of DFI business model, supported by a revised regulatory regime to ensure compliance with their mandate.
- Forthcoming assessment of the CDNS (¶8h) will guide actions to ensure the public sector does not duplicate private functions or inhibit growth and innovation, noting increased market-based savings opportunities via asset managers or retail investment in government securities traded at PSX.

### Energy sector policies — circular debt (CD) and reform strategy
- Stock of arrears:
  - Power payment arrears (CD) stood at PRs 2,794 billion (2.6 percent of GDP) at end-March 2024.
  - Gas payment arrears stock stood at PRs 2,083 billion (2.0 percent of GDP) at end-January 2024.
- Drivers of CD: tariffs lagging prices, inefficient management of DISCOs and NTDC, under-collections, delayed maintenance, weak transmission and distribution infrastructure.
- Program commitment: keep energy tariffs in line with costs while implementing reforms to reduce fiscal risks, ensure sector viability, and support debt sustainability.

### FY25 CD Management Plan (CDMP) — objective and instruments
- Objective: strive to achieve net zero CD flow for FY25 through timely tariff increases, targeted subsidies, and cost-reducing reforms.
- CDMP to be adopted by Cabinet by end-July 2024.
- Electricity tariff policy and protection:
  - Final notification of the FY25 annual rebasing (AR) in full on July 14, 2024, as determined by NEPRA.
  - NEPRA to continue timely automatic notifications of quarterly tariff adjustments (QTAs) and monthly fuel cost adjustments (FCAs).
  - Ensure full implementation of all ARs, QTRs, and FCAs; all provinces agree not to introduce any subsidy for electricity or gas.
- Budgeted power subsidies for FY25:
  - FY25 budget includes PRs 1,229 billion (1.0 percent of GDP) in power subsidies to address liquidity needs.
  - Subsidy coverage breakdown:
    - Projected tariff differential: PRs 663 billion.
    - Arrears payments of FATA and KE: PRs 174 billion.
    - Agricultural tubewells: PRs 10 billion.
    - CD stock payments compensating projected CD flow via PHPL principal payments: PRs 24 billion.
    - Arrears payments to power producers: PRs 358 billion.
  - Use of any resources allocated above PRs 1,229 billion will be decided during the fiscal year, with potential to retire up to an additional PRs 35 billion in CD stock or return resources to the Treasury.
  - With World Bank support, continue efforts to reform tubewell subsidies; no tubewell subsidies budgeted for three provinces for FY25.
  - Medium-term aim to eliminate cross-subsidies to households and replace them with directly-targeted cash transfers via BISP for vulnerable households.
- Cost-reducing reforms (with World Bank, ADB, and other partners):
  - Improve distribution efficiencies:
    - Prioritize privatization or concession arrangements for private management of 9 DISCOs.
    - Cabinet ratified the decision in June 2024; hiring a Technical Advisor.
    - Complete policy actions to prepare two DISCOs for transactions by end-January 2025 (structural benchmark), including updating tariff guidelines, deciding treatment of existing DISCO employees, and launching a communications campaign.
    - Issue an RFP for the first DISCO concession by end-May 2025 and RFP for the first DISCO privatization by end-September 2025.
  - Institutionalize anti-theft procedures:
    - Anti-theft ordinance submitted to the National Assembly to institutionalize enhanced collections efforts.
  - Improve the transmission system:
    - Finalized first Transmission System Expansion Plan and amended the 2015 transmission policy framework to spur private investment.
    - Finalizing restructuring of NTDC into three entities: Independent System Operator and Market Operator (ISMO); Power Transmission Infrastructure Development Company (PTIDC); and National Transmission Maintenance Company (NTMC).
    - New entities will be operational and full restructuring completed by end-December 2024.
  - Privatize inefficient generation companies (GENCOs):
    - Plans to privatize at least two GENCOs (Nandipur and Guddu 747).
    - Technical Advisor to be engaged by end-August 2024 for roadmap development.
    - Complete prior actions (land and building rationalization; plan for treatment of existing employees) by end-December 2024.
    - Develop transaction structure by end-June 2025 and begin bidding during Q1 FY26.
  - Conversion of coal-fired power plants:
    - Seek to convert existing imported coal-fired plants to domestic coal use; initial step: joint in-depth study with relevant IPPs.
  - Complete transition to a competitive electricity market:
    - Finalize a policy framework by end-September 2024 to facilitate transition toward a new wholesale market for electricity (CTBCM) approved by NEPRA in 2020 and market operator licenses granted in 2022.
    - Transition to be phased and responsible to minimize impact on consumers and the budget.
  - Renegotiating remaining PPAs in return for clearing unguaranteed CPPA-G arrears:
    - In FY25, settle up to PRs 263 billion earmarked for IPPs and GPPs with revised PPA terms, using established contract structure (10-year floating-rate PIBs and 5-year sukuks in equal parts, or a more efficient instrument).
    - Strive to reduce capacity payments as arrears are paid, either by renegotiating PPAs or lengthening bank loan durations depending on budget space and CDMP progress.
  - Converting government-guaranteed PHPL debt into cheaper public debt:
    - Fiscal space created to settle PRs 24 billion falling due in FY25 from the budget.
    - Outstanding principal amount of PRs 659 billion at the end of FY25 will be settled as per maturity of loans falling in subsequent years.
  - Accelerate move to renewable energy:
    - Build on recently-updated IGCEP and TSEP (2024-34) to mandate an increased share of cheaper renewable energy in the generation mix.
  - Capacity expansion restraint:
    - Carefully review need for additional capacity and will not enter further capacity commitments without prior commitment for new transmission infrastructure and once that infrastructure is online and existing capacity is fully utilized at peak times.
  - Continue to refrain from:
    - Netting out cross-arrears (unless independently audited).
    - Using “non-cash” settlements (e.g., payables against the reimbursement of on-lent loans to DISCOs).
    - Issuing government guarantees (e.g., for PHPL-issued sukuks to transfer CPPA-G payables to PHPL) except where necessary to substitute an existing Government Guarantee on maturity.

### Gas sector reforms
- Focus: price normalization across sectors and elimination of captive power.
- Key metrics and commitments:
  - Notify June 2025 semiannual gas tariff adjustment as determined by OGRA on July 1, 2024, preserving the progressive tariff structure and protecting vulnerable households.
  - Notify the December 2024 semiannual gas tariff adjustment as determined by OGRA by February 15, 2025 (structural benchmark).
  - Gas tariff adjustments will continue to include the cost of imported RLNG.
- Eliminating captive power:
  - Pricing structure for non-domestic consumers to be refined via semiannual notifications with goal of completely phasing out captive power and transitioning captive power users to the electricity grid.
  - End captive power usage by end-January 2025 (structural benchmark).
  - Captive power tariffs already revised from PRs 1,200/mmbtu in October 2023 to PRs 2,500/mmbtu in November 2023, and then to PRs 2,750/mmbtu in February 2024.
- Unifying pricing and WACOG:
  - Issued policy guidelines to OGRA effective November 1, 2023, following OGRA Ordinance amendments (March 2022) and understanding with mission for recovery of cost of diverted RLNG.
  - Work to develop implementation strategy for WACOG; once implemented, WACOG will allow full cost recovery of imported RLNG and provide adequate price signals to guide gas consumption and help reduce power generation costs.
  - Removed distinction between export and non-export industries by redefining consumer categories as ‘Industry (Process) and Industry (Captive Power)’; will continue revision of gas tariff for captive power plants to enable transition to power grid.
- Automatic notification of semiannual gas price determinations:
  - 2022 amendment to OGRA Ordinance mandates automatic notification of OGRA determinations.
  - Commit to providing timely advice to OGRA within 40 days of determination of revenue requirements in respect of category-wise consumer gas prices; OGRA empowered to notify prices if government does not provide advice within 40 days.
- Improving monitoring and management of gas CD:
  - Move toward devising a precise definition of gas-sector CD (includes oil but excludes power sector elements); compile detailed and verified gas CD stock statistics; establish a monthly gas CD flow reporting system; and devise a gas CDMP.
  - CDMP salient elements: regular adjustments of end-user gas prices per established formulas (and in line with OGRA Amendments Ordinance effective since March 2022) and tangible cost-reducing reforms (including measures to reduce unaccounted for gas (UFG) losses via infrastructure improvements, network rehabilitation, and theft controls).
  - Engaged a third-party consultant to evaluate and analyze existing data of gas CD and cashflows of the gas companies as a first step.

*Source: Excerpt from PDF chapter content provided.*

### 21.      The remainder of our structural reform agenda will seek to reduce inefficiencies, boost

### 21.      The remainder of our structural reform agenda will seek to reduce inefficiencies, boost

### State-Owned Enterprise (SOE) reform: goals and commitments
- Objective: scale back the state’s footprint, improve services, and reduce fiscal liabilities by implementing the SOE Act, SOE Policy, and enhanced monitoring via the Central Monitoring Unit (CMU).
- Key measures and deadlines:
  - Complete amendments to SOE-dedicated laws for the remaining 12 statutory SOEs to fully align with the SOE Act and complete the process for at least 10 entities (excluding entities listed in the privatization program with a specific financial adviser approved and hired) — structural benchmark end-June 2025.
  - Amend the remaining two SOE laws — enactment by end-September 2025.
- Recent progress:
  - Revisions to the laws of four selected statutory SOEs (National Highway Authority, Pakistan Postal Services, National Shipping Corporation, Pakistan Broadcasting Corporation) completed on June 22, 2024; these were amended by ordinances published on November 30, 2023.

### Sovereign Wealth Fund (SWF): legal and governance safeguards
- Commitment to enact necessary legal amendments to the SWF Act and other legislation by end-December 2024 (structural benchmark, end-December 2024).
- Specific objectives:
  - i. Nature of the SWF: legally define the SWF as a SOE, subject it to the SOE Act, adopt provisions ensuring the SWF’s governance corresponds with a holding entity’s nature and mandate; require privatization/sales and procurement to be open, competitive, transparent and non-discriminatory; Board and Advisory Committee appointments to be transparent, merit-based, and participatory.
  - ii. Governance: amend section 50 of the SWF Act to explicitly establish that SWF-owned SOEs are subject to the SOE Act and SOE Policy; adopt additional amendments to operationalize the SWF’s SOE ownership functions as a holding entity with appropriate oversight systems as agreed with Fund staff.
  - iii. Fiscal safeguards: require that all revenues from SWF operations be provided directly to the government and not retained by the SWF; prohibit use of SWF assets to provide borrowing to any public entity, including SOEs, or as collateral.
- Operational sequencing: execution of the SWF Act and preparatory actions for SWF operation will only occur after completion of the above reforms.

### Ensuring compliance with SOE governance framework
- Update and transformation planning:
  - Complete categorization and recommendations for reform (updating the March 2021 Triage Plan) by relevant line ministries by end-September 2024 (in line with paragraph 11 of the SOE Policy).
  - Line ministries to develop plans to transform SOEs by end-September 2024 (in line with paragraph 12 of the SOE Policy).
- Specific deadlines for the 15 largest commercial SOEs by asset size:
  - Adoption of business plans and publication of statements of corporate intent (SCI) by end-October 2024.
  - Adoption and publication of externally audited, IFRS-compliant financial statements and annual reports for FY24 by end-December 2024.
  - Ensure all commercial SOE Boards are majority independent, per section 12(2) of the SOE Act, by end-December 2024.
  - Identification, costing, and contracting of public service obligations (PSOs) for the seven commercial SOEs with the largest PSO claim on government, entering into PSO agreements with the government in line with SOE Act (Schedule II) and SOE Policy, by end-June 2025.

### Central Monitoring Unit (CMU): operationalization and transparency
- Commitments and deadlines:
  - Complete development of electronic database so CMU can fully meet reporting requirements under Section 31 of the SOE Act by end-June 2025.
  - Further develop aggregate SOE report (first published December 2023) to meet OECD good practice guidelines; include SOEs’ performance against FY24 financial and non-financial benchmarks in the December 2024 report.
  - Issue four operational manuals by end-October 2024 to guide: PSO framework implementation; development of business plans and SCIs; governance including SOE director selection, appointment and performance reviews; and CMU monitoring functions and reporting per SOE Policy.
  - Hire an additional three technical staff for CMU by end-2024.

### Agriculture price-setting and market interventions
- Policy shift: phase out federal and provincial government price-setting for agricultural commodities by end-FY26.
- Rationale: government interventions (including fertilizers) have created market distortions, stifled private sector activity and innovation, exacerbated price volatility and hoarding, and risked fiscal sustainability.
- Transition specifics:
  - Refrain from announcing support prices for raw commodities and discontinue procurement operations that crowd out private sector, limiting purchase programs to federal government’s own use and narrowly defined food security needs (objectives and parameters defined ex ante).
  - All government transactions at market prices; any sales from government stocks to happen at cost recovery.
  - Lay out transition strategy for the 2025 kharif crop season by end-September 2024 to minimize disruptions.

### Governance, anti-corruption, and asset transparency
- Governance and Corruption Diagnostic (GCD) Assessment:
  - Undertake GCD Assessment with IMF capacity development support to analyze governance and corruption vulnerabilities and identify priority structural reforms.
  - Publish full GCD report — structural benchmark end-July 2025.
- UNCAC Review Report:
  - Issue a federal regulation by end-September 2024 to formalize intention to publish the full UN Convention against Corruption Review Report immediately after the review process is completed.
  - Ministry of Law and Justice published April 2024 Task Force Review Report and is developing an implementation plan.
- National Accountability Bureau (NAB) and Provincial Anti-Corruption Establishments:
  - Subject to Supreme Court decision on NAB Ordinance petition, consider legislative amendments to NAB Ordinance to strengthen independence and effectiveness.
  - Empower Provincial Anti-Corruption Establishments by law to investigate money laundering related to corruption within their jurisdiction, request and receive financial intelligence from the FMU as an investigating agency under the AML Act, and provide sufficient resources and training for parallel financial investigations.
- Asset declarations of high-level public officials:
  - Amend Civil Servants Act of 1973 to ensure asset declarations of high-level public officials (BPS 17-22), including domestic and foreign assets beneficially owned by them or a family member, will be digitally filed and publicly accessible through the FBR with safeguards for data protection and privacy — structural benchmark end-February 2025.
  - Provide the Establishment Division a robust framework, resources and tools to conduct risk-based verification.
- Bank access to asset declarations for AML/CFT:
  - SBP, FBR and FMU support banks’ access to asset declarations of high-level public officials (BPS17-22) to help banks comply with AML/CFT obligations and better risk-profile politically exposed persons.
  - SBP engaging with banks to develop standard operating procedures to implement FBR rules on access to asset declarations.
  - FBR to launch a new digital portal to receive and respond to requests by end-September (year implied in source).
  - Engage with Provinces to issue regulations to grant banks’ access to high-level provincial public officials (BPS17-22).
  - Continue monitoring banks’ utilization of asset declarations through periodic assessments and address identified challenges.

### Trade liberalization and tariff policy
- Commitments:
  - Continue trade liberalization reforms in the National Tariff Policy 2025-2029.
  - Commit not to increase Pakistan’s trade-weighted average customs duties.
  - Trade-weighted average tariffs (defined as customs duties, additional customs duties and regulatory duties, taken together) will decrease every year during FY25-29.
  - Refrain from implementing or prolonging preexisting trade-distortive measures such as export subsidies or local content requirements as defined under WTO agreements.
- Facilitation:
  - Continue simplifying import/export documentation and improving processing times.
  - Expand Pakistan Single Window platform beyond the federal level to include provincial departments by end-FY26.

### Investment facilitation and level playing field
- Special Investment Facilitation Council (SIFC):
  - Ensure SIFC does not propose, nor the government provide, regulatory, spending, or tax-based incentives of any sort, guaranteed returns, or any action that could distort the investment landscape.
  - Establish best transparency and accountability practices for SIFC operations.
  - Ensure all investment made under SIFC results from the standard Public Investment Management framework.
- Fiscal incentives and Special Economic Zones (SEZs):
  - Government will refrain from providing companies fiscal incentives such as tax breaks or other subsidies (including for credit).
  - Conduct an assessment of fiscal costs and effectiveness of each SEZ (including Export Processing Zones, EPZs) and publish assessment in FY25.
  - Refrain from providing new fiscal incentives to any new or existing SEZs, and will not renew existing ones; refrain from creating new SEZs or EPZs going forward (including by provincial governments).
  - Prepare a plan, based on the FY25 assessment, to fully phase out all current SEZ incentives by 2035, subject to preexisting contractual obligations — structural benchmark end-June 2025.
  - During 2024–2035 transition, strive to replace preexisting profit-based incentives with cost-based incentives (such as immediate expensing on tangible assets), subject to compliance with existing legal commitments.
  - Where contractual provisions allow early termination or renegotiation of existing SEZ incentives, authorities will phase out such incentives insofar as allowed; no new fiscal or other incentives offered to SEZs should be provided to any firms, sectors or investments.

### Macroeconomic data improvements and statistical strengthening
- Priorities:
  - Increase granularity and reliability of Government Finance Statistics; requested IMF Technical Assistance to review current data sources and compilation processes and to provide guidance per GSM 2014.
  - Address shortcomings in national accounts: quality of producer price data for GDP volumes and source data for sectors representing around a third of GDP that rely on extrapolation between censuses in FY06 and FY16.
- Statistical program and timelines:
  - In anticipation of FY25-26 rebasing, Pakistan Bureau of Statistics (PBS) working on producing a new PPI index with IMF TA; pilot data collection of agricultural and manufacturing activities expected to commence in July 2024.
  - PBS to launch fieldwork for four major surveys (including integrated agricultural census, labor force survey, and household integrated economic survey) in July 2024; preliminary results expected during FY25.

### Climate change: adaptation, finance, mitigation
- Urgency and context:
  - Climate change is an urgent existential challenge for Pakistan; catastrophic 2022 floods highlighted vulnerabilities.
  - FY24 budget improved green budgeting processes; additional improvements to be incorporated in FY25 budget.
- a. Adaptation:
  - National Adaptation Plan (NAP) identifies adaptation needs and policies; translating NAP into specific costed investment plans at provincial and local levels, enhanced by Fund-supported C-PIMA Action Plan.
  - Developed a climate scoring methodology for PSDP projects aligned with NAP and two guideline handbooks; these will be finalized and implemented by all ministries by end-September 2024.
  - Finalized National Flood Protection Plan with climate risk in appraisal analysis.
  - Finalized and published handbook on incorporating climate sensitivity into planning and project preparation; incorporated climate into building codes.
  - Refine appraisal methodology and finalize it by end-August 2024.
  - Continue to refine green budget-tagging capacity through FY25 budget and extend to provinces by end-June 2025.
  - Incorporate climate considerations into project selection criteria, beginning with a pilot on water sector projects and expand to transport and energy sectors, complete by end-December 2024.
  - Established Climate Change Authority as Ministry of Climate Change’s implementing arm and working toward operationalization.
  - National Emergencies Operations Center leveraging BISP datasets to calibrate social protection disbursements in disasters.
  - Following approval of National Disaster Risk Financing Strategy, establish guidelines and implement reporting of financing sources and expenditures on disaster relief, recovery, and reconstruction beginning in January 2025.
- b. Climate finance:
  - World Bank’s 2022 Country Climate and Development Report estimated Pakistan’s annual climate investment needs through 2030 at equivalent to

10.7 percent of GDP.
  - Established Climate Finance Wing at the Ministry of Climate Change.
  - Working with World Bank to develop a National Climate Finance Strategy and to submit for GCF board approval applications for accreditation of 3 national entities.
  - Selected climate finance projects will be planned, budgeted, and implemented under Pakistan’s standard public investment framework reflecting C-PIMA principles.
  - Establish a national digital dashboard for climate finance and pipeline development of climate resilience projects by end-June 2025.
  - Developing a green financing taxonomy, ESG reporting guidelines, and a green stress-testing framework to account for climate shocks on financial stability, anticipated completion by June 2026.
- c. Mitigation and transition management:
  - Active party to the Paris Agreement and related initiatives.
  - Key projects: up-scaling Green Pakistan Program (over 2.1 billion trees already planted) with estimated sequestering potential of 148.8 million tons of carbon through 2030; greening energy mix; policies to shift relative prices (including adequate taxation of fuel products) and develop guidelines and a regulatory framework for a voluntary carbon trading system under the UNFCCC.

*Source: Extracted content from the provided IMF Pakistan program document.*

### 30.      We have secured adequate financing from our international partners to support our

### 1pakea2024003-print-pdf - 30.      We have secured adequate financing from our international partners to support our

### Financing and external buffers
- Residual financing needs during the program period (after incorporating pre-existing financial commitments, rollovers and the envisaged IMF program): US$5 billion.
- To close the gap for the first 12 months of the arrangement, financing commitments secured from bilateral and multilateral partners, including China, Saudi Arabia, the Asian Development Bank and the Islamic Development Bank.
- Renewed commitments secured from bilateral partners to continue rolling over short-term claims (including loans, swaps and deposits) for the duration of the program; authorities will seek to lengthen the maturity of these claims as they roll over to reduce the burden of, and risks around, high gross financing needs.

### Program monitoring, reviews, and TMU
- Implementation monitored through semiannual reviews, with semiannual performance criteria and continuous performance criteria, as set out in this MEFP.
- The attached Technical Memorandum of Understanding (TMU) defines the quantitative performance criteria, continuous performance criteria, indicative targets, and structural benchmarks under the program.
- Completion of the first review scheduled for March 2025 will require observance of the quantitative performance criteria for end-December 2024 (as set out in Table 1), along with continuous PCs and ITs. Structural benchmarks are set out in Table 2.

### Table 1: Selected Quantitative Performance Criteria and Indicative Targets (FY2024/25)
- Units: (Billions of Pakistani rupees, at program exchange rates, unless otherwise indicated); fiscal year runs from July 1 to June 30. All definitions as per the attached Technical Memorandum of Understanding.
- Test dates / Status columns: end-Jun 2024 (Proj./IT), end-Sep 2024 (PC), end-Dec 2024 (IT/PC), end-Mar 2025 (Proj.), end-Jun 2025 (Proj.)

I. Quantitative Performance Criteria
- Floor on net international reserves of the SBP (millions of U.S. dollars):
  - end-Jun 2024: -12,349
  - end-Sep 2024: -12,150
  - end-Dec 2024: -12,050
  - end-Mar 2025: -10,200
  - end-Jun 2025: -8,650
- Ceiling on net domestic assets of the SBP (stock, billions of Pakistani rupees):
  - end-Jun 2024: 15,542
  - end-Sep 2024: 15,044
  - end-Dec 2024: 15,211
  - end-Mar 2025: 15,179
  - end-Jun 2025: 15,820
- Ceiling on SBP's stock of net foreign currency swaps/forward position (negative, millions of U.S. dollars):
  - end-Jun 2024: -3,450
  - end-Sep 2024: -3,250
  - end-Dec 2024: -3,000
  - end-Mar 2025: -2,750
  - end-Jun 2025: -2,500
- Ceiling on the general government primary budget deficit (cumulative, excl. grants, billions of Pakistani rupees) 2/:
  - end-Jun 2024: -401
  - end-Sep 2024: -198
  - end-Dec 2024: -2,877
  - end-Mar 2025: -2,707
  - end-Jun 2025: -2,435
- Ceiling on the amount of government guarantees (stock, billions of Pakistani rupees) 3/:
  - end-Jun 2024: 4,585
  - end-Sep 2024: 5,100
  - end-Dec 2024: 5,200
  - end-Mar 2025: 5,400
  - end-Jun 2025: 5,600
- Cumulative floor on targeted cash transfers spending (BISP) (billions of Pakistani rupees):
  - end-Jun 2024: 472
  - end-Sep 2024: 101
  - end-Dec 2024: 235
  - end-Mar 2025: 415
  - end-Jun 2025: 599
- Cumulative floor on the number of new tax returns from new filers (thousands):
  - end-Jun 2024: 142
  - end-Sep 2024: 752
  - end-Dec 2024: 253
  - end-Mar 2025: 3,000
  - end-Jun 2025: 450

II. Continuous Performance Criteria
- Zero new flow of SBP's credit to general government: 0 0 0 0 0
- Zero ceiling on accumulation of external public payment arrears by the general government: 0 0 0 0 0

III. Indicative Targets
- Floor on the weighted average time-to-maturity of the local currency domestic debt securities stock (years):
  - end-Jun 2024: 2.7
  - end-Sep 2024: .8
  - end-Dec 2024: 2.8
  - end-Mar 2025: 3.0
  - end-Jun 2025: 3.0
- Cumulative floor on general government budgetary health and education spending (billions of Pakistani rupees):
  - end-Jun 2024: 685
  - end-Sep 2024: 1,405
  - end-Dec 2024: 2,150
  - end-Mar 2025: 2,863
- Ceiling on the aggregate provincial primary budget deficit (cumulative, billions of Pakistani rupees) 2/:
  - end-Jun 2024: -650
  - end-Sep 2024: -342
  - end-Dec 2024: -750
  - end-Mar 2025: -1,028
  - end-Jun 2025: -1,217
- Floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees):
  - end-Jun 2024: 9,251
  - end-Sep 2024: 2,652
  - end-Dec 2024: 6,009
  - end-Mar 2025: 9,168
  - end-Jun 2025: 12,913
- Floor on the consolidated net tax revenues collected by Provincial revenue authorities (cumulative, billions of Pakistani rupees):
  - end-Jun 2024: 835
  - end-Sep 2024: 184
  - end-Dec 2024: 376
  - end-Mar 2025: 606
  - end-Jun 2025: 918
- Floor on net tax revenues collected by the FBR from retailers under the Tajir Doost scheme (cumulative, billions of Pakistani rupees):
  - end-Jun 2024: 0
  - end-Sep 2024: 10
  - end-Dec 2024: 23.
  - end-Mar 2025: 4.3
  - end-Jun 2025: 6.750
- Ceiling on net accumulation of tax refund arrears (cumulative, billions of Pakistani rupees):
  - end-Jun 2024: 56
  - end-Sep 2024: 32
  - end-Dec 2024: 43
  - end-Mar 2025: 56
  - end-Jun 2025: -24
- Ceiling on power sector payment arrears (cumulative flow, billions of Pakistani rupees):
  - end-Jun 2024: 47
  - end-Sep 2024: 52
  - end-Dec 2024: 55
  - end-Mar 2025: 41
  - end-Jun 2025: 54
- Footnote 3/ includes guarantees for commodity operations by SOEs.

### Table 2: Structural Conditionality (summary of prior actions, structural benchmarks, rationale, and dates)
- Prior Actions for program approval (Status: Met)
  - Fiscal: Parliamentary approval of a FY25 budget in line with IMF staff agreement to meet program targets. (Met)
  - Energy Sector and SOEs:
    - Notification of the annual electricity tariff rebasing by July 10. (Met)
    - Notification of the June semiannual gas tariff adjustments by July 15. (Met)

- Structural Benchmarks (action — rationale — date)
  - Fiscal
    - Do not grant tax amnesties, and do not issue any new preferential tax treatment (including exemptions, zero rating, tax credits, accelerated depreciation allowances, or special rates). — Protect tax revenue — Continuous
    - Seek ex-ante parliamentary approval for any expenditures that are non-budgeted or that exceed the budgetary appropriation. — Improved parliamentary oversight of budget execution — Continuous
    - Approve a National Fiscal Pact devolving some spending functions to the provinces. — Address the mismatch of federal and provincial revenues and expenditures — end-September 2024
    - Share with the IMF staff a report detailing actions to reduce the federal government's footprint. — Reduce the footprint of the state — end-September 2024
    - Each province amends their Agriculture Income Tax legislation and regime to fully align it with the federal personal income tax regime for small farmers and the federal corporate income tax regime for commercial agriculture, so that taxation can commence from January 1, 2025. — Protect tax revenue — end-October 2024
    - Fully implement compliance risk management measures in Large Taxpayer Units in large markets in Islamabad, Karachi, and Lahore Regional Offices. — Improve tax compliance — end-December 2024
    - Develop and publish on the Ministry of Planning website: (i) the criteria for project selection, including a scorecard, detailing the weight assigned to each criterion and the methodology for calculating the score; and (ii) the annual limit on the total size of new projects entering the PSDP portfolio. — Better public investment management — end-January 2025
    - Introduce a 5 percent FED on fertilizer and pesticide. — Protect tax revenue — end-June 2025
  - Governance
    - Amend the Civil Servants Act to ensure that asset declarations of high-level public officials (inclulding assets beneficially owned by them and a member of their family) are digitally filed and publicly accessible (with sufficient protection over private information) through the FBR, with a robust framework for risk-based verification by a single authority. — Enhance effectiveness of anti-corruption framework — end-February 2025
    - Publish the full Governance and Corruption Diagnostic Assessment report. — Publicly identify critical governance vulnerabilities — end-July 2025
  - Social
    - Annual Inflation adjustment of the unconditional cash transfer (Kafaalat). — Maintain purchasing power in real terms — end-January 2025
  - Monetary and Financial
    - Average premium between the interbank and open market rate will be no more than 1.25 percent during any consecutive 5 business day period. — Maintain FX market functioning — Continuous
    - Parliamentary approval of amendments to the bank resolution and deposit insurance legislation, in a manner that preserves the integrity of the draft legal amendments. — Strengthen crisis management toolkit — end-October 2024
    - Place undercapitalized private banks under resolution unless (i) these banks are fully recapitalized by end-October 2024; or (ii) a legally binding agreement is in place by end-October 2024 towards a merger with other banks or with a new sponsor that would achieve full recapitalization by April 2025. — Enforce regulatory standards — end-November 2024
    - In consultation with Fund staff, revise regulations and underlying methodologies on risk mitigating measures, including enhanced collateral policy and by requiring counterparties to be financially sound. — Improve safeguards in monetary policy operations — end-December 2024
    - Implement revised regulations on risk mitigating measures. — Improve safeguards in monetary policy operations — end-September 2025
  - Energy Sector
    - Complete all policy actions needed to prepare two DISCOs for privatization and concession transactions. — Improve DISCO management and efficiency — end-January 2025
    - Eliminate captive power usage in the gas sector. — Push captive gas users on to the electricity grid and channel gas to the most efficient generators — end-January 2025
    - Public notification by the government of the December 2024 semiannual gas tariff adjustment determination. — Maintain tariffs at cost recovery levels — February 15, 2025
  - State-Owned Enterprises and Investment Policy
    - Amend the SWF Act and other legislation, in consultation with Fund staff and in line with MEFP ¶25.b, to adopt appropriate governance mechanisms and safeguards following international standards and good practices to (i) ensure that SOEs under the ownership of the SWF revert to the SOE Act’s governance structures, (ii) that the SWF itself comes under governance mechanisms and safeguards in line with its principal nature as a holding company, and appropriate fiscal safeguards are in place for the SWF’s operations. — Improve SOE governance by bringing all SOEs into line with the SOE legal framework approved in 2023 and strenghten SWF governance and accountability. — end-December 2024
    - Amend the laws for 10 additional statutory SOEs, in consultation with Fund staff and in line with MEFP ¶25.a., to bring them in line with the SOE Act. — Improve SOE governance by bringing all SOEs into line with the SOE legal framework approved in 2023. — end-June 2025
    - Prepare a plan based on the assessment conducted to fully phase out all current Special Economic Zone incentives by 2035. — Improve efficiency and provide a level playing field for investment — end-June 2025

### TMU: Key definitions and exchange rates
- Program exchange rate of the Pakistani rupee to the U.S. dollar: 278.3412 rupee per one U.S. dollar.
- Text Table 1. Program exchange rates (Units of currency per U.S. dollar; As of June 28, 2024):
  - EUR 0.935016
  - JPY 160.909469
  - CNY 7.266408
  - GBP 0.790920
  - AUD 1.507727
  - CAD 1.371050
  - THB 36.800095
  - MYR 4.717496
  - SGD 1.357050
  - INR 83.448119
  - SAR 3.751497
  - SDR 0.760260
- NIR definition: U.S. dollar value of the difference between usable gross international reserve assets and reserve-related liabilities, evaluated at program exchange rates.
- Usable gross international reserves include: holdings of foreign currencies; holdings of SDRs; the reserve position in the IMF; holdings of fixed and variable income instruments. Exclusions listed (e.g., claims on residents; assets in nonconvertible currencies; precious metals; illiquid assets; pledged/collateralized assets; assets not readily available for intervention; balances held at foreign branches of non-investment rated domestic banks).
- Reserve-related liabilities include: foreign currency liabilities (excluding liabilities to the general government) with remaining maturity of one year or less; foreign exchange liabilities arising from derivatives positions on a net outstanding basis; outstanding IMF credits to Pakistan; foreign exchange deposits with the SBP of foreign governments, foreign central banks, foreign deposit money banks (excluding regulatory capital deposits of foreign banks with the SBP), international organizations, foreign nonbank financial institutions, and domestic financial institutions (excluding regulatory capital deposits of domestic financial institutions with the SBP). Exclusions: SDR allocations and accrued interest on reserve-related liabilities.
- Aggregate net position in foreign exchange derivatives: aggregate net positions in forwards and futures in foreign currencies of the SBP and general government vis-à-vis the domestic currency.
- Gross sale and net purchase of foreign exchange defined as outright and swap sales/purchases by the SBP to/from banks in the foreign exchange interbank market; measured on a net daily basis.
- Adjustment mechanism for the NIR floor:
  - Floor on NIR will be adjusted upward (downward) by the cumulative excess (shortfall) in cash inflows usable for financing of the government budget from multilateral and bilateral creditors, commercial borrowing, and bond issuance relative to projected inflows (Table 1).
  - Cumulative cash inflows usable for financing defined to include external disbursements (including grants) from official multilateral creditors (e.g., ADB, Islamic Development Bank, World Bank), official bilateral creditors (including but not limited to bilateral oil facilities, China, Saudi Arabia, UAE, DFID-UK, USAID), external bond placements and other commercial borrowings usable for central government budget financing (including foreign currency financing by local branches of foreign banks), plus proceeds from sales of state-owned assets to official bilateral partners, sovereign wealth funds.
  - Downward adjustment of the floor on NIR limited to a maximum of US$2,000 million for both the December 2024 and June 2025 test dates.

*Source: Pakistani authorities; Fund staff estimates; Technical Memorandum of Understanding and MEFP Tables as provided in the content unit.*

### 13.      Reserve money (RM) is defined as the sum of: (i) currency outside schedule banks (deposit

### 13. Reserve money (RM) is defined as the sum of: (i) currency outside schedule banks (deposit money banks); (ii) schedule banks’ domestic cash in vaults; (iii) schedule banks’ required and excess rupee and foreign exchange deposits with the SBP; and (iv) deposits of the rest of the economy with the SBP, excluding those held by the federal and provincial governments and the SBP staff retirement accounts.

### Definitions and scope
- Reserve money (RM) comprises:
  - currency outside schedule banks (deposit money banks);
  - schedule banks’ domestic cash in vaults;
  - schedule banks’ required and excess rupee and foreign exchange deposits with the SBP; and
  - deposits of the rest of the economy with the SBP, excluding those held by the federal and provincial governments and the SBP staff retirement accounts.
- Stock of net foreign currency swap/forward positions:
  - defined as the aggregate net positions in forwards and futures in foreign currencies of the SBP vis-à-vis the domestic currency (including the forward leg of currency swaps);
  - evaluated at the program exchange rate.
- General government primary budget deficit (excluding grants):
  - monitored quarterly as the general government’s overall budget deficit (excluding grants) minus the consolidated interest bill of the federal and provincial budgets.
- General government overall budget deficit (excluding grants) is measured as the cash deficit from below the line, defined as the sum of:
  - net external budget financing, excluding valuation changes, with foreign currency disbursements/payments converted into PRs at the actual exchange rates applied to each transaction;
  - change in net domestic credit from the banking system (cash basis), excluding valuation changes from deposits denominated in foreign currency and government securities bought by non-residents (notably T-bills, Pakistan Investment bonds (PIBs), Naya Pakistan Certificates, and Banao Certificates);
  - change in the net domestic nonbank financing, excluding valuation changes, comprising:
    - privatization receipts (either received directly or transferred from the privatization accounts to the general government budget, including from abroad and in foreign currency);
    - change in the stock of issued government securities held outside the general government and the banking system, net of valuation changes;
    - change in net deposits and reserves received by the general government (public accounts deposits);
    - any other government borrowing from domestic nonbank sources net of repayments;
    - minus change in general government deposits with nonbank financial institutions;
  - total external grants to the federal and provincial governments, defined as the sum of project grants, cash external grants for budgetary support, capital grants reflecting the principal amounts of external debt cancellation or swaps, and other grants, converted into PRs at actual exchange rates applied to each transaction.

### Net external budget financing and related definitions
- Net external budget financing (excluding valuation changes and all external financing counted as reserve liabilities of the SBP) is the sum of:
  - external budget loans to the general government, including those on-lent to financial institutions and companies (public or private) and external emergency relief lending, comprising:
    - medium- and long-term maturity from official multilateral sources (including IMF budget support), official bilateral sources, and private sector sources (e.g., bonds and non-residents’ purchases of PIBs, Naya Pakistan Certificates, and Banao Certificates);
    - short-term maturity, net of foreign portfolio investment excluding non-residents’ purchases of Naya Pakistan Certificates and Banao Certificates but including non-residents’ purchases of domestic T-bills;
  - net external debt amortization flow of the general government, which is the change in its stock of external debt service arrears net of the debt amortization due on its external budget loans (accounting for rescheduled, relieved, or accelerated amortization, including that related to debt swaps or debt cancellation recorded as capital grants).

### Adjustment mechanism for NDA and government deficit ceilings
- Ceiling on NDA adjustment:
  - The ceiling on the NDA will be adjusted downward (upward) by the cumulative excess (shortfall) in cash inflows from multilateral and bilateral creditors, and commercial borrowings and bond issuances relative to the projected inflows (Table 1) and evaluated at the program exchange rate.
  - The upward adjustment of the ceiling on NDA will be limited to the same maximum adjustor limit set for NIR evaluated at the program exchange rate.
- Ceiling on general government primary budget deficit (excluding grants) adjustment (cumulative since the beginning of the fiscal year):
  - downward (upward) by any shortfall (excess) in external project financing relative to the program projections evaluated in Pakistani rupee terms at actual average quarterly exchange rates (see Table 1). External project financing is defined as disbursements from bilateral and multilateral creditors to the general government for specific project expenditure;
  - downward by any underexecution in the targeted cash transfers (BISP) relative to the indicative program target;
  - downward by any excess in the flow of power sector payment arrears, excluding non-recoveries and excess line losses, above the respective indicative program targets;
  - downward by any excess in the flow of tax refund arrears relative to their respective indicative program targets;
  - downward (upward) by any excess (shortfall) in the flow of SBP profit transfer relative to their respective projections (Text Table 1).

### Ceilings, floors, and specific quantitative items
- Ceiling on SBP’s stock of net foreign currency swap/forward position:
  - aggregate net positions in forwards and futures in foreign currencies of the SBP vis-à-vis the domestic currency (including forward leg of currency swaps);
  - evaluated at the program exchange rate.
- Ceiling on the amount of government guarantees:
  - applies to the stock of publicly guaranteed debt for which guarantees have been issued by the central government, including domestic guarantees (including guarantees to SOEs for commodity operations) and external government guarantees;
  - external government guarantees converted into Pakistani rupees at the program exchange rate;
  - if an entity incurs interest arrears on borrowings backed by the guarantee, for QPC purposes the guarantee shall be evaluated as the higher of the value of the guarantee issued or the total amount owed;
  - excludes guarantees issued by the Ministry of Finance for the SBP borrowing from the IMF.
- Floor on targeted cash transfers spending (BISP):
  - applies to the cumulative targeted cash transfers spending by the Benazir Income Support Program (BISP), i.e., all spending on BISP programs.
- Floor on the number of new tax returns from new filers:
  - applies to the cumulative number of file returns from new filers identified through the implementation of the Compliance Improvement Plan;
  - excludes returns filed voluntarily by new filers who had not received a prior notification letter, and returns filed by retailers under the Tajir Dost Scheme.

### Text Table 1: Projections for SBP profit transfer (Cumulative flows from start of fiscal year; billions of Pakistani Rupees)
- end-Sep 2023: 0
- end-Dec 2023: 2,500
- end-Mar 2024: 2,500
- end-Jun 24: 2,500

### Continuous Performance Criteria (C)
- No new flow of SBP’s credit to general government (C.1):
  - no new flow of SBP’s direct credit to the general government, including purchases of public debt securities on the primary market;
  - applies on a continuous basis throughout the program period.
- Zero ceiling on accumulation of external payment arrears by the general government and SOEs (C.2):
  - external payment arrears defined as all unpaid debt-service obligations (payments of principal and interest) of the general government (federal and provincial government, and SBP), and state-owned enterprises to nonresidents arising in respect of public sector loans, debt contracted or guaranteed (including unpaid penalties or interest charges associated with these obligations that are beyond 30 days after the due date);
  - the ceiling on the accumulation of external payment arrears is set at zero;
  - applies on a continuous basis throughout the program period.
- Other continuous performance criteria (C.3) — Pakistan will not during the program period:
  - impose or intensify restrictions on the making of payments and transfers for current international transactions;
  - introduce or modify multiple currency practices (MCPs) excluding those MCPs arising from the introduction and/or modifications of the multiple-price foreign exchange auction system operating in line with IMF staff advice with the objective of supporting flexible market-determined exchange rate;
  - conclude bilateral payment agreements that are inconsistent with Article VIII of IMF Articles of Agreement;
  - impose or intensify import restrictions for balance of payments purposes.

### Indicative targets (D) and measurement definitions
- Floor on the weighted average time-to-maturity (ATM) of the domestic debt securities stock (D.1):
  - ATM calculated based on exact remaining time to maturity (in years) of each instrument in the portfolio (T-bills, PIBs, Sukuks);
  - remaining time to maturity of each instrument as of the relevant test date weighted by:
    - the realized value at issuance for short-term instruments (original maturities of one year or less), including T-bills and short-term Sukuks;
    - the face value for longer-term instruments (original maturities greater than one year), including PIBs and longer-term Sukuks.
- Floor on general government budgetary health and education spending (D.2):
  - applies to cumulative budgetary spending on health and education by the federal and provincial governments.
- Ceiling on the aggregate provincial primary budget deficit (D.3):
  - monitored quarterly as the aggregate overall budget deficit of the four provincial governments (Punjab, Sindh, Khyber Pakhtunkhaw, Balochistan), minus the aggregate interest bill of the four provincial budgets;
  - aggregate provincial overall budget deficit measured as the cash deficit from below the line.
- Floor on net tax revenues collected by the FBR (D.4):
  - defined as the sum of revenues from:
    - (i) general sales tax (GST) on goods (including GST on services collected in Islamabad Capital Territory);
    - (ii) customs duties, customs registration fees and levies;
    - (iii) excise duties on imported products;
    - (iv) excise duties on domestic products;
    - (v) levies (toll) on oil derivatives;
    - (vi) other proceeds and fees;
    - (vii) sales tax;
    - (viii) unclassified revenues (including income tax);
    - minus the tax refunds.
  - Net revenue collection defined, for each test date, as the cumulative sum of net revenues collected since the beginning of the respective fiscal year; measured quarterly based on cumulative end-of-quarter data.
- Floor on consolidated net tax revenues collected by provinces (D.5):
  - defined as the sum of revenues from:
    - (i) general sales tax (GST) on services (excluding GST on services collected in Islamabad Capital Territory);
    - (ii) stamp duties;
    - (iii) property tax;
    - (iv) agriculture income tax;
    - (v) registration fees;
    - (vi) unclassified revenues;
    - minus the tax refunds.
  - Net revenue collection defined, for each test date, as the cumulative sum of net revenues collected since the beginning of the respective fiscal year; measured quarterly based on cumulative end-of-quarter data.
- Ceiling on net accumulation of tax refund arrears (D.6):
  - applies to the cumulative flow of tax refund arrears;
  - stock of tax refund arrears defined as amount of tax refund claims not settled (through cash refund, netting out against obligations of taxpayers, payment with a government bond/promissory note or an official decision to reject the claim) within a specified time period after submission to the FBR.
  - Stocks and starting points as of end-May 2024:
    - stock of income tax refund arrears is PRs 230.9 billion as of end-May 2024, and the net accumulation of income tax refund arrears will be counted from the starting point of PRs 230.9 billion;
    - stock of sales tax arrears at end-May 2024 is PRs 183.8 billion, and the net accumulation of sales tax refund arrears will be counted from the starting point of PRs 183.8 billion.
- Floor on the net tax revenue from retailers under the Tajir Dost Scheme (D.7):
  - defined as the sum of revenues from the advance tax payed by retailers registered under the Tajir Dost scheme;
  - net revenue collection defined, for each test date, as the cumulative sum of net revenues collected since the beginning of the respective fiscal year; measured quarterly based on cumulative end-of-quarter data.
- Ceiling on power sector payment arrears (D.8):
  - power sector payment arrears defined as power sector payables in arrears that arise from:
    - (i) line losses and non-recoveries that are not recognized by NEPRA;
    - (ii) non-recoveries from supply to Azad Jammu and Kashmir (AJ&K), other federal and provincial governments including FATA, private consumers, and Baluchistan Tube Wells;
    - (iii) accrued markup from the servicing of PHPL;
    - (iv) late payment surcharges;
    - (v) delays in subsidy payments;
    - (vi) delays in tariff determinations resulting in pending generation cost;
    - (vii) non-payments by K-Electric;
    - (vii) other adjustments (including prior year recoveries, spillovers etc.).

_Italic: Source — 1pakea2024003-print-pdf excerpt provided in the content unit._

### 35.      To effectively monitor the program performance, the authorities will provide all the

### 1pakea2024003-print-pdf - 35.

### Program monitoring and data provision
- The authorities will provide all needed data to the IMF in line with Article VIII, Section 5 of the IMF Articles of Agreement as deemed necessary.
- Performance under the program is monitored from data supplied by: State Bank of Pakistan (SBP), Ministry of Finance (MOF), Federal Board of Revenue (FBR), Pakistan Bureau of Statistics (PBS), Ministry of Energy (Power and Petroleum Division), and other agencies as outlined in Table 2.
- The authorities will report on an ongoing/continuous basis any non-observance of continuous PCs and will promptly transmit any data revisions and other information necessary to monitor the arrangement.

### Projected external disbursements (Table 1)
- Period columns and projections (Millions of U.S. dollars):
  - Jul-Sep 2024 Proj.: Multilateral and bilateral disbursements 2,241; of which: in cash 1/ 1,999; of which: Saudi oil facility and IDB commodity loans 100; of which: project support 680; of which: sales of state-owned assets 0; International bond issuance 2/ 0; Commercial borrowing 3/ 2,000; Other 0; Gross inflows 2,441; of which: in cash 2,199; memo: New loans/deposits at SBP 4/ (not shown)
  - Oct-Dec 2024 Proj.: Multilateral and bilateral disbursements 5,040; of which: in cash 1/ 4,739; of which: Saudi oil facility and IDB commodity loans 100; of which: project support 840; of which: sales of state-owned assets 0; International bond issuance 2/ 0; Commercial borrowing 3/ 0; Other 0; Gross inflows 5,040; of which: in cash 4,739
  - Jan-March 2025 Proj.: Multilateral and bilateral disbursements 3,445; of which: in cash 1/ 3,184; of which: Saudi oil facility and IDB commodity loans 136; of which: project support 728; of which: sales of state-owned assets 0; International bond issuance 2/ 0; Commercial borrowing 3/ 1,600; Other 0; Gross inflows 5,045; of which: in cash 4,784
  - Apr-June 2025 Proj.: Multilateral and bilateral disbursements 5,359; of which: in cash 1/ 4,987; of which: Saudi oil facility and IDB commodity loans 164; of which: project support 1,055; of which: sales of state-owned assets 0; International bond issuance 2/ 0; Commercial borrowing 3/ 2,753; Other 0; Gross inflows 8,112; of which: in cash 7,740
- Notes in Table 1:
  - 1/ Assumes that 65 percent of project loans and 50 percent of project grants will be received in cash.
  - 2/ Includes Naya Pakistan Certificates (NPC). NPC flows are recorded on a net basis.
  - 3/ Includes foreign currency denominated loans from local branches of foreign banks.
  - 4/ Not included in multilateral and bilateral disbursements for the purposes of the adjustor.
  - Note: Cumulative excess/shortfall of flows cumulates from July 1, 2024 onwards.
- Label: FY2025

### Monitoring and reporting requirements (Table 2) — key reporting lines, frequencies, and timing
- State Bank of Pakistan (SBP)
  - SBP balance sheet Summary: Weekly, First Thursday of the following week.
  - SBP balance sheet Summary at program exchange rates; and by official exchange rates: Monthly, Within 15 days of the end of each month.
  - Monetary survey Summary: Monthly, Within the first 30 days of each month.
  - International reserves (program and actual official exchange rates): Daily, The following working day.
  - International reserves inflows/outflows into/out of Naya Pakistan Certificates: Daily, The following working day.
  - Foreign exchange market (market exchange rates, weighted average customer exchange rate, monthly trade volume, high and low interbank/KERB): Daily/Monthly, Within one day/monthly within five working day.
  - SBP foreign exchange operations and intervention (volume; outright and forward-related): Daily, Within one day.
  - SBP operations in swap/forwards (volumes and all legs of transactions; initial outstanding, transactions, end-of-day): Daily, Within one day.
  - Interbank spot market transactions for US dollars (value, number of transactions, number of banks, average value, weighted average price, simple average price, standard deviations): Daily, Within one day.
  - Interbank forward market transactions for US dollars (value, number, banks involved, averages and standard deviations, average maturity): Daily, Within one day.
  - Aggregate customer transactions of commercial banks (gross sales and purchases): Weekly, Third working day of the following week.
  - Stock of dividend/profit payments pending execution (cleared regulatory processes): Monthly, Within one week.
  - Breakdown of short/long counterparts of swap/forward contracts: Daily, Within one day.
  - Outstanding swap/forward positions by maturity buckets and counterparties: Monthly, Third working day of the following month.
  - Net International Reserves at program exchange rates including breakdown by currency and nostro balances with foreign branches of National Bank of Pakistan: Quarterly, Seventh working day after quarter end.
  - External financing: Foreign assistance received and projections for the coming four quarters, categorized by program/project and cash amounts: Quarterly, Within 15 days of the end of each quarter.
  - Interbank money market daily repo volume and interest rate: Daily, Within one day.
  - SBP operations (Repo/reverse repo, open market operations): Weekly, First Monday of the following week.
  - Bank liquidity Excess reserves, in local currency: Bi-weekly, With a lag of 15 days.
  - T-bill and coupon bond financing, SBP securities auction data: Fortnightly, Last working day of the fortnight.
  - Banking data (sectoral distribution of loans and deposits; local and foreign currency; deposit and lending rates): Monthly, Within 25 working days of the end of each month.
  - Loan maturities: Quarterly, Within 45 days of the following quarter.
  - Regularity capital deposit requirement deposits of foreign and domestic schedule banks with the SBP (account numbers specified): Monthly, Within 15 days of the end of each month.
  - Banking indicators Core Financial Stability Indicators (FSIs) including capital adequacy, asset composition and quality, profitability, liquidity, open FX positions – aggregate and bank-by-bank (without names): Quarterly, Within 45 days of the following quarter.
  - Liquidity data and deferred/restructured loans: Weekly, Within 5 days of the end of each week.
  - Banks’ net open foreign exchange positions split between total foreign assets and FX liabilities: Monthly, Within five days of the end of each month.
  - Holdings of government securities – aggregate and bank-by-bank (without names): Monthly, Within 7 days of the end of each month.
  - Banking sector stress tests results on exchange rate, liquidity, and credit risk: Quarterly, Within 60 days.
  - Workers’ remittances: Monthly, Within 25 days of the following month.
  - Other monetary data (SBP survey, ODCs and DCs published in IFS): Monthly, Within 45 days of the end of each month.
  - SBP refinance schemes outstanding position (by program): Monthly, Within 25 days of the end of each month.
  - Balance of payments detailed export and import data; detailed balance of payments data: Monthly, Within 28 days of the end of each month.
  - Privatization receipts: Balance on the PC Fund account; gross inflows into and outflows from the PC Fund account during the month specifying the nature of each transaction: Quarterly, Within seven days of the end of each quarter.
- Ministry of Finance (MOF)
  - External debt disbursements and stock of outstanding short-term and outstanding stock of medium-and long-term external debt of the government, SBP, and state-owned companies; stock of arrears on external debt service and outstanding stock of government guarantees and external arrears: Monthly, Within 25 days of the following month.
  - External financing received and projections for the coming four quarters, categorized by program/project and amounts received/expected in cash and in kind: Quarterly, Within 15 days of the end of each quarter.
  - List of all disbursements and amortization payments for external budget financing and external grants (above US$3 million or equivalent) including date, foreign currency amount, exchange rate applied, rupee amount credited, creditor: Quarterly, Within 25 days of the end of each quarter.
  - Gross disbursements and amortization of Naya Pakistan Certificates by residents (in PRs) and non-residents (in PRs and US$): Quarterly, Within 25 days of the end of each quarter.
  - Domestic debt composition: Monthly, Within 25 days of the end of each month.
  - T-Bill, PIB, and Sukuk Bid sheet from domestic debt auctions, including auctions via PSX: Daily, Within 1 day of each T-Bill and PIB auction.
  - Federal and provincial governments fiscal operations (including fiscal outcomes broken down by province): Monthly, Within 30 days of the end of each month.
  - Government guarantees issued and executed (name of entity and value): Quarterly, Within 15 days of the end of each quarter.
  - Consolidated general government fiscal outcomes broken down by province: Quarterly, Within 45 days of the end of each quarter; Annual consolidated general government: Annual, Within 180 days of the end of each year.
  - Fiscal financing sources: Detailed quarterly financing plan for the coming 12 months including projections for domestic public securities, external financing, SBP profits, short-term borrowing, other financing schemes, and borrowing from the SBP: Monthly, One month in advance.
  - Total general government budgetary spending on health and education broken down by federal and provincial governments: Monthly, Within 15 days of the end of each month.
  - Stock of government borrowing from the SBP: Quarterly, Within the first five days of each quarter.
- Pakistan Bureau of Statistics (PBS)
  - SPI, CPI, WPI detailed monthly price indices: Monthly, Within five days of the following month.
  - CPI Index of core inflation: Monthly, Within 21 days of the end of each month.
- Federal Board of Revenue (FBR)
  - Revenue collection and tax credits: Total revenue collected separately by tax administration and customs administration, including revenue by individual tax, and social contributions: Monthly, Within seven days of the end of each month.
  - Tax arrears by category and by type of tax: Monthly, Within seven days of each month / end of each month.
  - All tax refund claims in arrears itemized by tax category (GST, income, customs duties, etc.): Monthly, Within seven days of the end of each month.
  - Automated GST refunds detailed data and statistics on refund processing and waiting times: Monthly, Within seven days of the end of each month.
  - Large taxpayers data managed by LTUs: Monthly, Within seven days of the end of each month.
  - Import data (total value of recorded imports; total value of duty-paid recorded imports; number of transactions involving recorded imports; number involving non-duty free recorded imports): Monthly, Within 30 days of the end of each quarter.
  - Audits (percentage of selected companies and identified revenue from audits): Quarterly, Within 45 days of the end of each month (monthly data provided on a quarterly basis).
  - New taxpayers metrics and new retailers metrics: Monthly, Within seven days of the end of each month.
  - Track and trace system metrics (number of facilities, machines installed, total value of revenue collected per facility): Monthly, Within seven days of the end of each month.
- Ministry of Water and Power
  - CD flow report (detailing key components of CD flow), DISCO collections/losses by DISCO, electricity consumption and revenues by major consumer group (domestic and industrial, with domestic separated by slab), number of consumers, tariffs by consumer group, anti-theft yields, arrears to IPPs (broken down by each IPP): Monthly, Within 25 days from the end of the month.
- Ministry of Petroleum and Natural Resources
  - Detailed CD flow (receivables) data by entity and receiver, gas tariffs by consumer category, gas volume sales and gas revenues by consumer category, UFG losses per entity: Monthly, Within 30 days from the end of the month.
- BISP
  - Targeted cash transfers coverage (number of beneficiaries paid) and payment by all BISP programs: Monthly, Within 30 days from the end of the month.
- Ministry of Finance (financial statements)
  - Financial statements (cash flow, income statement, balance sheet) and operational indicators for Pakistan Railways, Pakistan Steel Mills and Pakistan International Airline: Quarterly, Within 30 days from the end of the quarter.
- Pakistan Public Procurement Authority
  - Public procurement numbers and amounts through the e-PADS system (planned, in-progress, completed) at Federal and Provincial levels: Quarterly, Within 30 days from the end of the quarter.

### Macroeconomic performance, policy targets, and reform priorities
- Recent macro outcomes and targets:
  - Inflation: 9.6 percent in August 2024; peak 38 percent in May 2023.
  - FX reserves: "have doubled to about five weeks of import."
  - Primary surplus: 0.9 percent of GDP in FY24.
  - FY25 budget target: headline primary surplus of 2.0 percent of the GDP.
  - Tax-to-GDP: FY25 annual budget envisages the tax-to-GDP increasing by ~ 2 percentage points of GDP, to 12.3; rising further to 13.4 of GDP by the end of the program.
  - Current account deficit (CAD): contained at 0.2 percent of the GDP; expected to remain in the region of 1.0 percent of the GDP in FY25.
  - Monetary policy stance: restrictive with a sizable positive real policy rate (currently about 10 ppts ex-post).
- Fiscal consolidation and revenue measures:
  - Measures include bringing retailers into the tax net, reduction in slabs for Personal Income Tax (PIT), expansion of coverage of FED while enhancing its rate, removal of several tax concessions and exemptions.
  - Finance Act FY25: abolished exemptions and concessions yielding about 0.37 percent of the GDP.
  - GST on services being moved from a positive list to a negative list.
  - Agreed reforms during program period: harmonization of agriculture income tax rates with PIT and restructuring of Urban Immovable Property Tax in consultation with the Fund.
  - National Fiscal Pact agreed by provinces in principle to harmonize taxes across jurisdictions.
- Debt sustainability and public investment:
  - Emphasis on sustained improvements in fiscal position, lengthening domestic debt maturities, diversifying investor base in government securities.
  - Recent measure: introduction of a contributory pension scheme for new employees to end increase in unfunded pension liabilities.
  - Energy subsidies contained at 1 percent of the GDP in the annual budget for FY25 by adjusting tariffs and introducing cost-side reforms.
  - Priority on improvements in PFM, data compilation and automation with IMF technical assistance.
- Energy sector reforms:
  - Measures include automaticity and implementation of tariff adjustments in the power sector to restore financial viability and reduce fiscal hemorrhaging.
  - Power sector nominal circular debt (CD) flow stabilized; gas sector data collection and transparency improved.
  - Structural inefficiencies in generation, transmission, distribution and payment recovery to be addressed in the next phase with the Fund, World Bank, and ADB.
- Social protection and human capital:
  - FY25 budget increases allocation to BISP by 0.5 percent of the GDP (27 percent higher compared to FY24) directed to enhanced coverage and higher generosity with inflation indexation.
  - Agreed gradual enhancements in investments in health and education during the program, financed by fiscal consolidation and provincial role in social sector investments.
- Structural reforms, SOEs, privatization, competitiveness:
  - SOE Policy promulgated and SOE Act in 2023; a Central Monitoring Unit at MOF established; statutes of SOEs being aligned with the SOE Act (four statutes amended; more harmonization in FY25).
  - Deregulation and privatization prioritized; federal and provincial governments agreed in principle to refrain from announcing support prices for raw commodities except for food security; Pakistan International Airlines and one DISCO are at advanced stages of privatization.
  - National Tariff Policy renewal: under the new Policy, authorities aim to reduce tariffs every year during FY25-29 and avoid increasing trade-weighted average customs duties and tariffs.
  - Pakistan Single Window to expand to federating units.
- Financial sector and AML/CFT:
  - SBP safeguards: December 2023 safeguards assessment found SBP has maintained or strengthened safeguards in ELRIC areas and implemented 2019 recommendations; improved external audits and governance via 2022 SBP Act amendments; vulnerabilities remain in monetary policy reverse repo operations.
  - Pakistan exited FATF grey list in 2022; National AML/CFT Authority established in 2023 to drive National AML/CFT Strategy and address risks from the 2023 National Risk Assessment.
  - SBP plans: advanced-stage winding-up of undercapitalized banks, strengthen institutional framework, enhance surveillance, increase inclusive access to financial services through digital solutions, and improve credit risk management.
- Program context and request:
  - SBA (July 2023 to April 2024) stabilized the economy and built momentum; proposed new EFF arrangement to build on structural agenda of prior EFF program.
  - Authorities request approval by the Executive Board of the proposed EFF and emphasize program ownership and commitment.

*Source: Staff Report for the 2024 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility—Informational Annex (excerpts from the provided content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1pakea2024003-print-pdf.pdf_