Pakistan’s macroeconomic and fiscal framework, established with the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility (EFF), has unraveled, prompting Islamabad to request a revision from IMF staff ahead of the first review.

Significant revisions in macroeconomic indicators, including real GDP growth and CPI-based inflation, have led to a major tax shortfall for the Federal Board of Revenue (FBR), projected to be around Rs321 billion for the first half of the fiscal year (July-December). Additionally, the non-tax collection target of Rs100 to Rs200 billion is unlikely to be met, potentially resulting in a fiscal gap of Rs500 to Rs600 billion.

Despite declining interest rates, the escalating debt burden due to increased stocks may not significantly reduce debt servicing costs. The finance ministry is expected to lower the policy rate by 200 basis points at the upcoming Monetary Policy Committee (MPC) meeting on November 4, 2024, reducing it from 17.5% to 15.5%. If CPI-based inflation continues to decline, another rate cut is anticipated in December 2024. However, the government may still need to reduce its Public Sector Development Programme (PSDP), which has already been revised down to Rs1,100 billion from the initial Rs1,250 billion.

Top officials confirmed that the macroeconomic framework has shifted significantly, with economic assumptions changing. CPI-based inflation, initially targeted at 12.9%, fell to 9.2% in the first quarter and further to 6.7% in September 2024. Imports, projected to grow at 16.9%, dropped to 8% in the first quarter. Large-Scale Manufacturing (LSM) growth, expected at 3.5%, currently stands at 1.3%. Real GDP growth, initially projected at 3.5%, has been revised down to 3% for the fiscal year.

The FBR faces a projected shortfall of Rs230 billion in the second quarter (October-December) of the fiscal year. In the first quarter, the FBR collected Rs2,563 billion, falling short of the target by Rs91 billion. The FBR aims to collect Rs12,913 billion for the current fiscal year, up from Rs9.299 trillion in the previous year.

However, with changed macroeconomic conditions, the FBR has faced a Rs147 billion shortfall in Sales Tax at the import stage, although income tax collection exceeded the target, reaching Rs1,230 billion against a target of Rs1,098 billion.

The FBR has identified 190,000 potential tax dodgers, issuing notices to 5,000 in the first batch, with more to follow. An ordinance is under consideration to enforce stricter measures against tax evasion, potentially introducing database slabs and securing powers through the ordinance.