ISLAMABAD: The Centre has urged provincial governments to urgently resolve their backlog of issues related to the International Monetary Fund (IMF) to help ensure the smooth and successful completion of ongoing talks for the second review of the $7 billion Extended Fund Facility (EFF) by the weekend.
Informed sources told Dawn that the Prime Minister Office (PMO) reached out on Sunday night to federal officers posted at the provincial capitals to use their good offices in streamlining the progress on pending matters and upcoming targets in line with commitments to the IMF, not only under the EFF but also the climate-related $1.4bn Resilience and Sustainability Facility. Similar instructions were also issued to key federal ministries.
The provincial chief secretaries and finance secretaries were directed to submit an update on their implementation status within 24 hours and to provide clear justifications for any unmet targets or delays. Informed sources said the Ministry of Finance had reported to the Prime Minister’s Office (PMO) that the governments of the larger provinces were not as forthcoming in cooperating on matters related to IMF commitments.
While the provincial governments — particularly Sindh and Punjab — had missed their targets for providing cash surpluses in line with commitments for the period ending June 30, they have also shown signs of lapses in the current fiscal year. Sindh has already announced a budget with a deficit of around Rs40bn. At the same time, Punjab has expressed discomfort with the stringent conditions, citing concerns over self-respect, even in the context of flood-related assistance.
Backlogs risk derailing review ahead of crucial weekend deadline
The PMO has also requested that the provincial bureaucracy share its updated reports with the Ministry of Finance. Informed sources said the IMF had already directed the authorities to put on hold disbursements for development schemes in flood-hit areas until clear need and loss estimates were available. The fund also expects the federal and provincial authorities to remain fiscally prudent.
The IMF has remained firm that flood support would be unacceptable at the cost of cash surpluses committed under the national fiscal pact, one of the key themes of the ongoing programme to ensure primary budget surplus targets. For FY26, Punjab is required to provide Rs740bn cash surplus to the Centre, followed by Rs370bn by Sindh, Rs220bn from KP and Rs185bn from Balochistan.
This comes amid discussions between the IMF and the federal authorities over revisions in macroeconomic indicators to account for flood-related losses[1]. This may involve a downward official revision of the economic growth projection to around 3.5pc from 4.2pc in the budget, and higher than the anticipated inflation, now exceeding 8pc, compared to the budgeted 7pc. That would involve cascading impact on many other sectors, including revenue collection, imports and exports, besides fiscal and current account targets.
Under the national financial pact, the provinces had amended their agricultural income tax regimes to align with federal income tax rules but they appeared unwilling or unprepared, or both, to ensure effective collections by the Sept 30 deadline linked to the end-October structural benchmark.
The provinces were also required to transition the goods and services tax (GST) on services to a negative list, effective FY26, and on moving to a capital-based property tax.
There are several reform measures committed to under the RSF, which involve greater responsibilities for provinces, requiring considerable preparation and homework, although their deadlines have yet to be met. These initiatives pertain to improving water system resilience and disaster response, financing water charges, and enhancing transparency through digitised records, particularly in Sindh and Punjab.
All the provinces had given an undertaking to the IMF that they would not introduce any policy or action that could be considered to undermine or run counter to any of the commitments or policies outlined in Pakistan’s sovereign agreement, as outlined in the Memorandum of Economic and Financial Policies.
The Centre had committed that “provinces agree to consult with the IMF through the federal Ministry of Finance before modifying or adopting any measures that could affect or undercut the program specified in the MEFP or which deviates from the goals of the programme”.
Published in Dawn, October 7th, 2025
References
- ^ flood-related losses (www.dawn.com)