Pakistan, IMF discuss faster energy reforms and external financing needs

Pakistan and the International Monetary Fund discussed steps to speed up energy-sector reforms, contain circular debt and manage the country’s external financing requirements, officials familiar with the talks said Tuesday.

The IMF pressed Pakistan to accelerate reforms in the energy sector and meet agreed targets for containing circular debt. Pakistani officials briefed the lender on progress and said regional tensions had affected the sector.

Under its zero-inflow target, Pakistan aims to keep energy-sector circular debt at around PKR 1.6 trillion, according to the officials.

The Pakistani side also outlined its external financing needs for the current fiscal year. The country expects to secure about USD 15 billion in foreign financing against projected external debt repayments of around USD 21.5 billion, including roughly USD 3.5 billion in interest payments.

Pakistan made about USD 2.2 billion in external debt payments in July, including USD 1.4 billion in Chinese commercial loans and USD 800 million in other external obligations.

Officials told the IMF that repayment pressure is expected to ease during the remaining 11 months of the fiscal year. External debt repayments stood at USD 26.5 billion in the previous fiscal year, meaning this year’s projected payments are about USD 5 billion lower.

Pakistan also briefed the IMF on measures to strengthen foreign exchange reserves, including financial support from Saudi Arabia.

The State Bank of Pakistan has purchased about USD 28 billion from the foreign exchange market over the past three years, officials told the IMF. Around USD 9 billion of those purchases were made during the 2025-26 fiscal year.

Agricultural income tax

Agricultural income-tax collection also emerged as an issue during the discussions, with the IMF raising concerns over targets for the sector.

Pakistan’s federal government backed the farmers’ position, arguing that high production costs have put many farmers under financial pressure. Officials said the government told the IMF that most farmers were not in a position to bear significant income-tax obligations, while production costs had increased amid regional tensions.

Provincial governments are taking steps to increase agricultural income-tax collections, officials said.

The Federal Board of Revenue also briefed the IMF on its efforts to digitalize tax collection.

Pakistan provided additional details on provincial measures to increase non-tax revenue and meet targeted fiscal surpluses.

The two sides are also scheduled to hold a special session on Pakistan’s automobile policy as part of the ongoing negotiations.