Troubles increased for poor Pakistan, weak tax collection became a pain in the neck, IMF stopped funds; What will the neighboring country do now?

Pakistan Economic Crisis 2026: The ongoing talks between Pakistan and the International Monetary Fund (IMF) regarding the release of an installment of one billion dollars have once again come to a standstill. According to reports, the reason for this is the questions being raised on the credibility of the current budget and low tax collection. Karachi’s newspaper ‘Business Recorder’ According to, IMF has once again raised questions on Pakistan’s tax system. IMF says that achieving the revenue target appears difficult.

The report says that this concern is justified. Pakistan’s tax system has been a weak performer for a long time. The country’s tax-to-GDP ratio is stuck at around 9-10 percent, which is the lowest compared to similar emerging economies. The tax base is limited, the informal economy is large and tax compliance is weak.

Demand for reform in tax system

For decades, every IMF program has called on Pakistan to improve tax administration, expand the tax base and increase revenue targets, but despite these efforts, the results have been limited. The formal sector still bears the majority of the tax burden, while large sections of the economy, particularly retail, agriculture and other sectors, are under-taxed or left out of the system altogether. The informal economy, often estimated at about 40 percent of GDP, is largely outside the reach of the tax system.

Revenue is also a big problem

According to the report, Pakistan’s financial problem is not only that the government collects very little revenue. An equally big problem is that huge financial losses continue in the public sector and decisive reforms have not been carried out. The clearest example of this is the continuing losses incurred by loss-making public enterprises. Entities like Pakistan International Airlines (PIA) and Pakistan Steel Mills have accumulated huge losses over the years. The burden of their liabilities falls on the national exchequer, which is borne through subsidies, guarantees and debt restructuring.

These institutions survive primarily because governments are reluctant to face the political risks associated with their restructuring or privatization. Yet their financial losses reach hundreds of billions of rupees every year, silently draining public resources.

Big crisis in energy sector too

The report further notes that, curiously, while IMF programs place great emphasis on revenue targets, the urgent need for public sector reform does not appear to be as strong. Privatization plans proceed slowly, restructuring deadlines are repeatedly postponed and loss-making institutions continue to receive government financial support. Another major financial crisis exists in the energy sector of Pakistan. The country’s circular debt (the complex series of outstanding payments within the power system) has reached several lakh crore rupees.

Emphasis on increasing electricity rates

To reduce this financial gap the IMF often electricity rates Has been emphasizing on increasing. But raising rates alone will not solve the problems of a system that is plagued by inefficiency and weak governance. Without deep restructuring and better management of power distribution companies, this circular debt increases again.

The article also said that another aspect that does not consistently receive adequate attention is non-productive or excessive public spending. Central and provincial budgets still involve high administrative costs, ill-conceived subsidies and politically motivated development schemes that have limited economic benefits.

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According to the article, fiscal discipline cannot be achieved merely by raising more revenue. It is also necessary that a serious review be conducted on how public money is being spent.