Taxes, flood damage in focus as Pakistan, IMF close talks

Pakistan and the International Monetary Fund (IMF) have concluded six days of technical-level talks focused on the country’s economic outlook, power sector reforms, flood damages, and tax collection challenges, according to official sources and briefing documents.

During the sessions, Pakistani officials informed the IMF of $26 billion external financing requirement in the current fiscal year. Of this, $12 billion is expected to be rolled over by friendly countries, while assurances have been given to the IMF that all bilateral loans would be rolled over for the duration of the loan program.

The government is considering issuing a Eurobond in the final quarter of the fiscal year to shore up foreign exchange reserves.

The next phase of the IMF program will hinge on Pakistan’s ability to meet revenue targets, reduce power sector inefficiencies, and mobilize external financing without derailing growth.

Flood damages

The agriculture sector’s growth rate is now expected to fall to 4%, down from an earlier estimate of 4.5%, due to severe flooding. The damage has prompted the government and the IMF to hold special sessions focused on flood impacts.

The IMF was briefed that the agriculture sector has suffered PKR 155 billion in total damages, with key crops incurring PKR 87 billion in losses.

• • Cotton production is projected to decline by 1.5 to 2 million bales, bringing the output down from 10.2 million to between 8 and 8.7 million bales.
• • Wheat output is expected to drop by 0.7 to 1.3 million tons.
• • Sugarcane production losses could range between 2.3 and 4.3 million tons.
• • Maize (corn) output may fall by 0.5 to 1.3 million tons due to flood-related destruction.

Overall, the growth of major crops is now forecasted to decrease from 6.7% to 4.5%, further dragging overall agricultural performance.

Power sector reforms

The IMF has reportedly set a deadline of 2031 for Pakistan to eliminate circular debt in the power sector. As part of the reform agenda, a new grid transition levy of 10% will be imposed on off-grid captive power plants. The levy will be increased to 15% in January 2026 and to 20% by August. The IMF has also set a revenue target of PKR 105 billion from increased levies on captive power generation.

Tax and revenue collection

Pakistan’s revenue collection has been a key point of contention between Pakistan and the Fund. The IMF has emphasized reforms to increase tax collection to plug the fiscal deficit.

While Pakistan and the IMF are engaged in talks, the Federal Board of Revenue (FBR) has reported a revenue shortfall of PKR 199 billion in the first quarter (July–September) of the fiscal year, largely due to flood disruptions.

The tax collection for Q1 stood at PKR 2.88 trillion against a target of PKR 3.08 trillion, with a shortfall of PKR 156 billion in September alone.

Despite the shortfall, the FBR issued refunds worth PKR 157 billion during the quarter. The breakdown of taxes collected in the first quarter of the current fiscal year is:

Officials estimate that flood-related disruptions alone resulted in at least PKR 60 billion in lost tax revenues during the first quarter.