Trust deficit delays IMF staff level agreement in Islamabad

ISLAMABAD: The delay in reaching an agreement with the International Monetary Fund (IMF) may be due to a trust deficit. Officials from the Finance Ministry explained that the IMF is focused on ensuring the 2025-26 budget adheres to guidelines, which include reforms in the energy sector and a plan for privatizing state-owned entities. The next few days will feature virtual discussions about new tax measures for the upcoming fiscal year. These discussions will also cover energy reforms and progress in privatization plans, as officials aim to finalize the staff-level agreement (SLA) soon. However, IMF Executive Board approval could be delayed until specific conditions are met. In previous agreements, the IMF's process has involved lengthy discussions. Last year, a similar situation occurred when an SLA was reached two months after initial talks. The approval process took around four months, requiring prior actions related to the budget and tariff adjustments. The Federal Board of Revenue (FBR) reported a significant shortfall in tax collection, falling short of the target by Rs601 billion in the first eight months of the fiscal year. They are working to meet annual targets through increased enforcement and tax audits. There were talks about reducing tax targets, but it’s uncertain if this will lead to changes in indirect taxes. The FBR also suggested lowering tax rates in certain sectors to boost revenue, but the IMF did not agree with this approach. The IMF stressed the need for concrete actions on privatizing loss-making state-owned enterprises, such as Pakistan International Airlines (PIA). This privatization process is seen as vital for improving efficiency and easing the financial burden on the government.