IMF calls Pakistan performance ‘exceptional’, backs loan approval amid India’s objections

ISLAMABAD: The executive board of the International Monetary Fund has commended Pakistan’s implementation of programme conditions while also raising concerns over tax collection weaknesses, a narrow tax base and worsening poverty indicators, according to officials familiar with the board’s discussions.

The board met on May 8 and cleared the fourth tranche of $1.1 billion under the Extended Fund Facility as well as a second tranche of $220 million under the Resilience and Sustainability Facility. Officials with direct knowledge of the meeting said First Deputy Managing Director Nigel Clarke, who chaired the session, described Pakistan’s performance as "exceptional".

According to the officials, Pakistan fulfilled all core programme conditions and most indicative targets for the July-December 2025 review period, with the main shortfall linked to Federal Board of Revenue targets. They said there was also some progress on structural benchmarks during that period.

Board discussion and Indian objections

Officials said one board director described the May 8 session as one of Pakistan’s strongest meetings at the IMF, with broad appreciation from members apart from India. Despite Indian objections, the board approved the third review of Pakistan’s economy by majority vote.

They said India again opposed approval of the EFF and RSF tranches, arguing that the funds were being used for defence purposes, but the board did not accept that position. India had made similar allegations earlier as well, without providing evidence that the funds were being used beyond their stated objectives.

IMF lending is intended to support the balance of payments and help stabilise external buffers, while the climate resilience facility is meant for budgetary support. It also said India had previously tried, without success, to block financing for Pakistan at the Asian Development Bank, the Asian Infrastructure Investment Bank and the World Bank.

Economic gains and unresolved weaknesses

Officials said board members appreciated Pakistan’s efforts to bring down inflation, steady the currency, build foreign exchange reserves and improve the credibility of monetary policy. They also said Pakistan’s improved standing with the IMF executive board could make it easier for the country to seek concessions in future if the Middle East war affects the budget and external sector.

At the same time, the board highlighted persistent concern over domestic revenue mobilisation. Officials said members stressed the need to broaden the tax base and improve revenue collection to ensure a smoother path at the next review.

These concerns are also shared by Pakistan’s top political leadership, which is considering additional administrative steps behind closed doors. Prime Minister Shehbaz Sharif has launched multiple initiatives over the past two years, but these have not succeeded in widening the tax base or achieving revenue goals.

Poverty and social protection concerns

Officials said the social cost of meeting programme conditions has largely been borne by lower-income groups, creating public dissatisfaction even as Pakistan’s credibility has improved with foreign creditors and bilateral partners.

The official poverty rate stands at 29%, the highest in 11 years. Income inequality has risen to 32.7, the highest ratio since 1998, while unemployment has reached 7.1%, the highest level in 21 years, citing Pakistan Bureau of Statistics data.

The IMF has also been pressing for higher stipends under the Benazir Income Support Programme and wider coverage to cushion the impact of inflation on the poorest households. However, BISP currently reaches 10 million families, while both lower- and middle-income groups remain under pressure from inflation and price increases linked to IMF-backed adjustment measures.

Pakistan needs to reduce dependence on foreign borrowing and focus on boosting exports and foreign direct investment, particularly in manufacturing, to lower economic vulnerabilities.