On October 7, Pakistan and the International Monetary Fund (IMF) reached a staff-level agreement on the fourth review of the Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility. Once the Executive Board signs off, it will release about $1.2 billion.
Stronger reserves and recovering growth are welcome. The harder question is whether this recovery discipline will continue after the programme ends in October 2027 and the next election approaches.
The IMF's 2026 Review of Program Design and Conditionality offers a way to think about that. It draws on 132 arrangements between 2018 and 2024 and examines why some programmes deliver lasting results.
Three themes run through its findings: whether revenue targets are realistic, whether reforms build on one another, and how political incentives shape behaviour. For Pakistan, each matters at least as much as the next disbursement.
Start with taxation. The third review found that Pakistan met all seven binding targets for end-December 2025, including the primary budget balance.
Two indicative targets were missed: overall Federal Board of Revenue (FBR) revenue and income tax from retailers. By end-March, the FBR shortfall had reached Rs611 billion.
Pakistan did report 557,000 new income tax returns with positive tax liability, above the target of 500,000. That indicates improving compliance.
A filed return, however, only shows that someone has entered the tax net. How much they actually paid, and whether lightly taxed sectors are now contributing more, remain open questions.
The IMF's cross-country evidence helps explain the gap. Revenue disappointments usually have two sources: measures that are only partly implemented, and estimates that were too optimistic from the start.
When collections keep falling short, those assumptions deserve as much scrutiny as the government's performance. The October statement highlights digital invoicing and risk-based audits.
These should be judged by sustained collections, with clearer reporting on which sectors are contributing. Registering activity, identifying unpaid liabilities and actually collecting the money are three separate achievements.
How fiscal targets are met matters as much as whether they are met. The October agreement keeps the primary surplus target at 2% of GDP for FY27.
The IMF's evidence links strong early adjustment to better later results. It also shows a recurring pattern: when revenue disappoints, governments protect their targets by cutting spending - and development spending is usually the first casualty.
At the same time, these cuts to capital spending led to only small downward revisions in medium-term growth forecasts. If the investment meant to drive growth doesn't happen, the growth and revenue projections built on it also need revising.
Pakistan has seen a version of this. The third review recorded a Rs100 billion cut to the Public Sector Development Program (PSDP) to help finance temporary fuel support.
The trigger was an energy shock, yet the lesson applies more broadly: immediate pressures can displace investment. Low-return projects can reasonably be dropped.
Productive ones need protection. The next test is whether reforms deepen over time.