Pakistan and the IMF are set to begin negotiations on a new $7 billion loan program on September 25.

Negotiations under the second review meeting of the $7 billion Extended Fund Facility program between Pakistan and the International Monetary Fund (IMF) will begin in Islamabad from September 25.

According to sources, the biggest challenge before the government is to convince the IMF to reduce the FBR’s proposed tax target. However, the fund has made it clear that in return, expenditure should also be reduced so that the agreed primary surplus target is maintained.

For the current fiscal year, the FBR has been given a tax collection target of Rs3.83 trillion by the end of September, but due to the economic slowdown and devastating floods, there is a possibility of a shortfall of about Rs200 billion in revenues. This shortfall also includes the weak performance of the last two months.

According to economists, either expenditure will have to be reduced or steps will have to be taken to generate additional revenues.  The impact of the floods on crop production threatens to reduce GDP growth and increase inflation, in view of which the IMF may possibly emphasize further revenue measures to cover flood-related expenses.