IMF board calls performance 'exceptional'

The executive board of the International Monetary Fund (IMF) has described Pakistan's overall performance on implementation of programme conditions as "exceptional" and turned down Indian propaganda about the use of loan proceeds, officials privy to board discussions held two weeks ago have revealed.

While the executive board lauded Pakistan's efforts to meet programme targets, it highlighted the shortfall in tax revenues, a narrow tax base and emphasised addressing the issue of rising poverty, said officials with direct knowledge of the board discussions.

Pakistan met all core programme conditions and most indicative targets except those related to the Federal Board of Revenue (FBR), and showed some progress on structural benchmarks for the July-December 2025 review period.

However, the cost of fulfilling these conditions has mostly been paid by the country's less affluent people, causing dissatisfaction, contrary to improving credibility in the eyes of foreign creditors and bilateral partners.

The executive board met on May 8 and approved the fourth loan tranche of $1.1 billion under the Extended Fund Facility (EFF) and a second tranche of $220 million under the Resilience and Sustainability Facility (RSF).

First Deputy Managing Director Nigel Clarke, who chaired the board meeting, termed Pakistan's performance "exceptional", indicating that the element of distrust was narrowing.

Officials said one board director called the May 8 meeting one of the best for Pakistan, where almost all members were appreciative of Pakistan's progress, except India. Despite Indian objections, the board approved the third review of Pakistan's economy.

India had also tried to block approval of a $1 billion loan tranche last year after it suffered defeat in a limited air war with Pakistan. Officials said India again tried to block the loan approval, claiming that the proceeds were being used for defence purposes, but the board did not agree. The Modi government made similar claims earlier but never provided evidence of loan use beyond stated objectives.

IMF loans are meant for balance of payments support to help stabilise external buffers. The climate resilience loan is used for budgetary support. India again voted against approval of the EFF and RSF tranches, but the executive board approved them by a majority vote.

India has also unsuccessfully tried to block loan approvals by the Asian Development Bank, the Asian Infrastructure Investment Bank and the World Bank. Pakistan needs to reduce reliance on foreign loans and take measures to enhance exports and foreign direct investment, particularly in manufacturing, to reduce vulnerabilities. India's attempts to politicise multilateral forums are also damaging its reputation in those institutions.

Officials said that due to Pakistan's improving standing with the IMF executive board, the country may find it easier to secure concessions in future to offset the impact of the Middle East war on its budget and external sector sustainability.

However, there is real concern about the country's narrow tax base, constant revenue shortfalls by the FBR and rising poverty. The official poverty rate is 29%, which is the highest in 11 years, while income inequality is even more alarming, jumping to 32.7, the highest ratio since 1998. Pakistan also has the highest unemployment rate in 21 years at 7.1%, according to the Pakistan Bureau of Statistics.

The IMF has expressed concerns about the narrow tax base and widening shortfall in its official reports and public communications, signalling areas where the programme is falling behind targets.

Sources said these concerns are shared by Pakistan's top political leadership, which behind closed doors is considering more administrative measures to address the issue. Prime Minister Shehbaz Sharif has undertaken multiple initiatives over the past two years, but these have not broadened the tax base or met revenue targets.

The officials said the executive board also emphasised domestic revenue mobilisation and efforts to broaden the tax base to ensure smooth sailing at the next board meeting.

Board members appreciated Pakistan's efforts to tame inflation, stabilise the currency, strengthen foreign exchange reserves and improve monetary policy credibility. To lessen inflation's impact on the lowest income groups, the IMF has stressed increasing stipends under the Benazir Income Support Programme (BISP) and expanding its coverage. However, BISP outreach is limited to 10 million families, while lower and middle?income groups are hardest hit by inflationary pressures and price increases under IMF conditions.