IMF Refuses to Extend $6 Billion Programme Until Petrol and Electricity Subsidy is Removed

The International Monetary Fund (IMF) Wednesday delayed the revival of the stalled $6-billion  programme for Pakistan. The global lender said that there have been deviations from the policies agreed in the last review, partly reflecting the fuel and power subsidies announced by the government in February.

In a press release issued after the completion of ongoing talks in Doha, the IMF said that its mission led by Nathan Porter held both in-person and virtual discussions in Doha, Qatar with the Pakistani authorities during May 18-25 on policies to secure macroeconomic stability and support sustainable growth in Pakistan.

“The mission has held highly constructive discussions with the Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform program, which is supported by an IMF Extended Fund Facility arrangement,” the statement said.

It added that, “Considerable progress was made during the mission, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable. In this regard, the further increase in policy rates implemented on May 23 was a welcome step.”

“On the fiscal side, there have been deviations from the policies agreed in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February. The team emphasized the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve program objectives,” the statement added.

“The IMF team looks forward to continuing its dialogue and close engagement with Pakistan’s government on policies to ensure macroeconomic stability for the benefit all of Pakistan’s citizens,” it concluded.

Miftah ‘Optimistic’ Despite IMF Defeat

Discussing the lender’s decision in a series of tweets, Finance Minister Miftah Ismail stated, “I have just returned from Doha after talks with the IMF. Our delegation had very useful and constructive discussions with the IMF team over the last week. We discussed significant slippages in FY 22, caused in part by the fuel subsidies given in February 2022”.

“We discussed targets for FY 23, where, in light of high inflation, declining forex reserves, and a large current account deficit, we would need to have a tight monetary policy and consolidate our fiscal position. Thus gov[ernmen]t is committed to reducing the budget deficit in FY23,” he said.

Miftah concluded, “The IMF team emphasized the importance of rolling back fuel & power subsidies, which were given by the previous administration in contravention of its own agreement with the Fund. Gov[ernmen]t is committed to reviving the IMF program & put Pakistan back on a sustainable growth path”.