ISLAMABAD: Pakistan has informed the International Monetary Fund (IMF) about its intention to reduce the size of the federal government by laying off surplus employees through a golden handshake scheme.
The plan was shared during ongoing discussions with the IMF on Thursday as concerns grew over sluggish revenue collection and the need for fiscal consolidation, according to official sources.
The global lender also raised questions about the justification for retaining certain federal ministries, especially those managing subjects constitutionally assigned to provinces.
During talks this week, the IMF’s focus remained on the Federal Board of Revenue’s (FBR) tax targets, the federal government’s size, and progress on establishing the Sovereign Wealth Fund in line with IMF requirements.
Local media outlets reported the IMF expressed concern over weak tax revenue performance as negotiations neared conclusion.
The lender rejected FBR’s projections to bridge the shortfall for the remainder of the fiscal year, prompting the finance ministry to explore potential expenditure cuts to satisfy IMF demands.
One of the recent meetings reportedly ended on a tense note, after which officials scrambled to revise projections and identify potential savings. These measures include surrendering the contingency fund and reducing non-essential spending. The accounting of the primary budget surplus also came under review.
Finance Minister Muhammad Aurangzeb met with the IMF mission chief on Wednesday, where discussions focused on finalising FBR’s revised tax collection target for the ongoing fiscal year. Officials remained hopeful that remaining differences over revenue estimates and potential savings would be resolved by Thursday.
Sources revealed that the Cabinet Division briefed the IMF on measures to reduce the federal government’s footprint, as required under the $7 billion loan programme. The government plans to amend the Civil Servants Act, 1973, which currently protects employees from layoffs, to allow for retrenchment of surplus staff.
If implemented, the reform will bring an end to the longstanding practice of retaining redundant employees until retirement. Officials said the move could help align the civil bureaucracy with the military model, where only the most efficient officers are retained.
However, initial savings from abolishing vacant posts and merging or closing down ten small departments have been minimal, amounting to just Rs17 billion. These figures contrast sharply with the government’s claims of an aggressive rightsizing effort, which some say was undermined by the recent expansion of the federal cabinet.
Over 50 ministers, ministers of state, advisers, and special assistants have been appointed in recent weeks.
The IMF pressed Pakistani officials on why the federal government maintains ministries that deal with areas falling under provincial jurisdiction. Ministries such as Education and National Health, according to the constitution, should be managed by the provinces. Yet the federal government continues to staff and fund them.
Prime Minister Shehbaz Sharif has added several new ministers in recent weeks, including three individuals overseeing the Interior Ministry. Mohsin Naqvi serves as Federal Interior Minister, while Pervaiz Khattak (a PTI dissident) and Talal Chaudhry hold advisory and junior ministerial positions, respectively. Similarly, both a federal minister and minister of state are tasked with health.
Officials told the IMF that the government plans to eliminate thousands of unfilled positions from grades 1 to 22, targeting annual savings of more than Rs12 billion. These cuts include 700 posts in grades 17 to 22, expected to save Rs2.5 billion, and a large number of lower-grade roles that could save Rs10 billion.
The IMF also suggested transferring surplus employees to provincial governments and raised concerns about overstaffing within projects under the Public Sector Development Programme (PSDP).
Officials informed the IMF that the government had already merged, closed, or transferred ten organisations, generating additional savings of Rs5 billion.
These include the closure of the Jammu & Kashmir Refugees Rehabilitation Organisation and the restructuring of the Chief Commissioner for Afghan Refugees office. The government is also repatriating undocumented Afghan refugees, giving them a March 31 deadline to leave.
In another consolidation move, three entities—Special Economic Zones Authority, Special Technology Zones Authority, and Export Processing Zones—are being merged into the new National Industrial Development Regulatory Authority.
The Human Organs Transplant Authority has been merged with the Islamabad Healthcare Regulatory Authority. Meanwhile, the National Trust for Population Welfare has been closed, and Sheikh Zayed Postgraduate Medical Institute is being handed over to the Punjab government.
The Pakistan Institute of Medical Sciences (PIMS) hospital may also be transferred to the Islamabad Capital Territory administration.
Additionally, the government is closing down the National Fertilizer Corporation and the National Productivity Organisation. It has merged the Ministry of States and Frontier Regions with the Ministry of Kashmir Affairs and Gilgit-Baltistan.
While handing over the Aviation Division to the Ministry of Defence, the government simultaneously created a new Public Affairs Unit, appointing Rana Mubashir Iqbal as Federal Minister and Abdul Rehman Kanju as Minister of State.
The IMF has urged Pakistan to ensure that its structural reforms are consistent with the goals of reducing the federal government’s size and improving governance. While Pakistani officials remain engaged with IMF staff to finalise these plans, the lender is seeking concrete actions rather than symbolic changes.
Officials close to the talks acknowledge that while some progress has been made, much more needs to be done to satisfy the IMF’s demands for downsizing and fiscal consolidation.
