Pakistan Government Struggles to Meet IMF Conditions Amid Economic Challenges

Prime Minister Shehbaz Sharif of Pakistan said on Friday that the country is facing an unimaginable economic challenge and the conditions set by the International Monetary Fund (IMF) are beyond imagination.^[0] He made the comments in a televised address, warning that the IMF delegation is in Islamabad and giving a tough time to the finance minister and his team.^[1]

The IMF is currently holding talks with Pakistan to revive a stalled $6.5 billion loan program.^[1] It has identified a breach worth PKR 2 trillion in budgetary estimates for the fiscal year 2022-23 and is demanding that the petroleum levy be increased by 20-30 rupees a litre.^[2]

Pakistan is currently left with only around $3.10bn in foreign exchange reserves, which can only cover 18 days’ worth of imports.^[3] To meet the IMF conditions, the Pakistan government might have to withdraw energy subsidies to big export industries, in addition to reducing non-salary, non-essential civil and security costs.^[4]

The International Monetary Fund (IMF) has stated that their goal is to develop policies that will bring about domestic and international sustainability. This includes actions to fortify the fiscal situation with lasting and reliable approaches while providing assistance to those impacted by the floods; to make the power sector operating once again and reduce the mounting circular debt; and to reinstate the foreign exchange market, allowing the exchange rate to address the foreign exchange shortage.^[4]

The IMF has also assessed that the Pakistan government did not recover the Fuel Price Adjustment of PKR 65 billion for the current fiscal year, and called on the government to increase the electricity tariff in the range of PKR 11-12.50 per unit to restrict the additional subsidy at PKR 335 billion for the current fiscal year.^[5]

The Pakistan government has shared its revised Circular Debt Management Plan (CDMP) with the IMF, which called for an increase in the circular debt to the tune of PKR 952 billion for the current fiscal year against an earlier projection of PKR 1,526 billion.^[5] The government increased petrol and diesel prices by Rs 35 per litre, effective immediately.^[6]

Overall, the Pakistan government is facing an immense economic challenge and is struggling to meet the stringent IMF conditions and bridge the fiscal gap. While the government is trying to cushion the impact on the vulnerable, it is yet to be seen how the IMF mission will take into account the necessary flood-related expenditures.

0. “Pakistan crisis: IMF bailout conditions ‘beyond imagination,’ says Prime Minister Shehbaz Sharif” Business Today, 3 Feb. 2023, https://www.businesstoday.in/latest/world/story/pakistan-crisis-imf-bailout-conditions-beyond-imagination-says-prime-minister-shehbaz-sharif-368827-2023-02-03

1. “IMF Is Giving Pakistan ‘Tough Time' on Bailout, Premier Says (1)” Bloomberg Tax, 3 Feb. 2023, https://news.bloombergtax.com/daily-tax-report-international/imf-is-giving-pakistan-tough-time-on-bailout-premier-says-1

2. “Ahead of crucial talks, IMF spots PKR 2 trillion breach in Pakistan’s budgetary estimates” The Hindu, 28 Jan. 2023, https://www.thehindu.com/news/international/ahead-of-crucial-talks-imf-spots-pkr-2-trillion-breach-in-pakistans-budgetary-estimates/article66443172.ece

3. “Pakistan set to bow to IMFs demands as forex reserves drop to $3.08 bn” Business Standard, 4 Feb. 2023, https://www.business-standard.com/article/international/pakistan-set-to-bow-to-imf-s-demands-as-forex-reserves-drop-to-3-08-bn-123020400505_1.html

4. “World News” LatestLY, 1 Feb. 2023, https://www.latestly.com/agency-news/world-news-pak-govt-may-withdraw-energy-subsidies-reduce-security-costs-to-secure-imfs-approval-for-economic-bailout-report-4783823.html

5. “MyIndMakers” MyIndMakers, 2 Feb. 2023, https://myind.net/Home/viewArticle/imf-rejects-pakistans-circular-debt-management-plan

6. “If You Want Money, Then Cut Down on Defence Expenses, IMF Tells Pakistan Over Stalled Loan Plan” News18, 31 Jan. 2023, https://www.news18.com/news/world/if-you-want-money-then-cut-down-on-defence-expenses-imf-tells-pakistan-over-stalled-loan-plan-6957487.html