Pakistan Prime Minister Shehbaz Sharif said on Friday that his government has to accept “beyond imagination” conditions to unlock an IMF bailout package.
“I will not go into the details but will only say that our economic challenge is unimaginable. The conditions we will have to agree to with the IMF are beyond imagination. But we will have to agree with the conditions.”
However this is not surprising, given Pakistan’s chequered history with commitments on international funding.
An IMF delegation landed in Pakistan on Tuesday for last ditch talks to revive vital financial aid which has stalled for months.
The four-day talks were held in Islamabad with representatives from more than seven departments present, to identify major fiscal gaps and discuss ways to plug them. The discussions covered details of expenditures and revenue performance to identify the policy measures — both revenue and non-revenue — that would have to be taken over the next four months of the current fiscal year.
The government has held out against tax rises and subsidy slashing demanded by the IMF, fearful of backlash ahead of elections due in October. And that is where the talks with IMF are hitting a hurdle.
IMF for swift reforms in power sector
IMF feels the major threat to Pakistan’s economy comes from the poor performance of its power sector, whose circular debt has reached Rs 2.9 trillion.
The global funding body wants Islamabad to cut subsidies for marginal electricity consumers, i.e. those consuming under 300 units. Statistics show that 88 per cent of power consumers in Pakistan fall within this bracket.
The increase in power tariffs for this segment will hit the poor the hardest, but sources said IMF was not even willing to accept reducing the threshold from 300 to 200 units, Dawn reported.
‘Hike fuel prices, privatise loss-making state units’
Sources said the current talks also covered the swift privatisation of loss-making state-owned enterprises, but the finer points are expected to be hammered out in the second round of technical talks.
Another of the Fund’s major demand is raising the petroleum development levy on diesel to Rs 50 from the current Rs 40 per litre. This means an increase of Rs 10, along with the impact of the depreciation of the rupee, will be reflected in the next review of prices, expected on Feb 15.
Also, one of IMF’s most vociferous demands is the restoration of unrestricted imports. But as of Friday, Pakistan was left with only around $3.10bn in foreign exchange reserves, which can only cover 18 days’ worth of imports.
Pakistan’s Federal Board of Revenue (FBR) is determined to reach the Rs 7.70 trillion revenue target, mainly because of record inflation and currency devaluation.
It is said to have put on hold two ordinances to impose Rs 200 billion in new taxes –increasing withholding tax and flood levy on imports, among other measures. The quantum of the revenue requirements now seems much higher than earlier projections, sources said.
Negotiations with IMF on the quantum of additional tax and non-tax measures are also expected to start from Monday.
Its economy is in dire straits, stricken by a balance of payments crisis as it attempts to service high levels of external debt
Economic worries compounded by domestic turmoil
Pakistan’s situation has been further complicated by political chaos and a deteriorating security situation.
It no longer issues letters of credit, except for essential food and medicines — causing a backlog of thousands of shipping containers at Karachi port.
Riding high on his personal popularity, former PM Imran Khan is holding rallies against the government.
Incidentally, Imran Khan — ousted in 2022 — had negotiated a loan package from the IMF in 2019 before reneging on promises to cut subsidies and market interventions, stalling the programme.
However, this is not new for Pakistan, which has seen more than two dozen IMF deals brokered and then broken in the past.
