The International Monetary Fund (IMF) has urged Pakistan to impose an irrigation water tariff adjustment mechanism in Punjab and Sindh to manage the operational and maintenance costs of irrigation infrastructure.
Under the Resilience and Sustainability Facility reform measures, the IMF, in its second review report issued on Thursday, ordered Pakistani officials, especially the governments of Punjab and Sindh, to implement this mechanism by the end of February 2027.
Moreover, the IMF has asked the irrigation authorities of Sindh, Khyber Pakhtunkhwa, and Balochistan to adopt and implement the e-Abiana irrigation service charge collection system by the end of August 2027.
The report also states that Pakistan must commit that the Special Investment Facilitation Council (SIFC) will not propose, nor will the government provide, regulatory, spending, or tax-based incentives of any kind, guaranteed returns, or take any other action that could distort the investment landscape.
The IMF emphasized that all investments made under the SIFC must result from the standard Public Investment Management framework.
Furthermore, the lender requested a commitment to refrain from creating new Special Economic Zones (SEZs) or other zones, providing new fiscal or other incentives related to zones, or renewing any existing incentives.
According to the report, Pakistan has missed four targets related to general government budgetary health, education spending, net tax revenues collected by the FBR, the ceiling on the aggregate provincial primary budget deficit, and the net accumulation of tax refund arrears as of the end of June 2025.
However, four indicative targets (ITs) were met at end-June 2025, including the floors on (i) (i) the weighted average time-to-maturity of local currency domestic debt securities stock, (ii) consolidated net tax revenues collected by provincial revenue authorities, (iii) income tax revenues collected by the FBR from retailers, and (iv) the ceiling on power sector payment arrears.
Under structural benchmarks (SBs), eight of 13 were met, including those related to the approval of the FY26 budget in line with program targets, the implementation of the new agricultural income tax, and the amendment of the Civil Servants Act to enhance public officials’ asset declarations. Two continuous SBs, one on not seeking ex-ante parliamentary approval for any non-budgeted expenditures and the other on the maximum average premium between the interbank and open market rates, were also met.
The SB on publication of the Governance and Corruption Diagnostic (GCD) was not met but has been completed as a prior action. The related SB on publication of the action plan based on the GCD’s recommendations was also not met and is proposed to be reset for the end of December 2025.
The SB on the preparation of a plan to phase out SEZs was missed but subsequently implemented in October 2025. The SB on the amendment of the laws on remaining statutory SOEs was not met, partly due to delays in the legislative process, and is proposed to be reset for the end of August 2026.
The continuous SB on avoidance of tax exemptions was missed due to exemptions applied to sugar imports; this has been addressed via the authorities’ commitment to deregulate the sugar sector.
The end-June SB on the introduction of an excise duty on fertilizer and pesticides was missed, as the authorities sought to prevent excessive burden on the agricultural sector in the context of several ongoing reforms and the recent floods, which have added to the challenges. However, this measure will be implemented as a contingency in the event of a revenue shortfall.
