EDITORIAL: The International Monetary Fund (IMF) on the last day of its first review mission to Pakistan - from 24 February to 14 March - on the 7 billion dollar Extended Fund Facility (EFF) programme as well as a possible new arrangement under the Fund’s Resilience and Sustainability Facility (RSF) intimated that there was ‘significant progress’ towards reaching the Staff Level Agreement (SLA) on the EFF as well as on RSF, a necessary prerequisite for the release of the one billion dollar tranche (plus what may be agreed under the RSF) and that policy discussions will continue virtually to finalize these discussions over the coming days.

Three observations are critical. First and foremost, the acknowledgement of significant progress is noteworthy. It may be recalled that from October 2022 till late June 2023 the Fund did not issue any such statement of support and let the programme lapse and instead negotiated a nine month 3 billion dollars programme late June 2023.

Second, it is unclear whether there is a linkage between the EFF and the RSF or, in other words, whether an SLA on the EFF will be critical for approval of RSF.

In this context it is also relevant to note that the three friendly countries - China, Saudi Arabia and the United Arab Emirates - have deposited over 10 billion dollars with the State Bank of Pakistan for one year to strengthen our reserves, with roll-over assured if the country remains on a Fund programme which, in turn, necessitates SLAs as and when due. These rollovers incidentally are also a pre-condition for Fund approval of the programme as well as each subsequent tranche release.

And finally, the Fund noted that policy discussions will continue virtually, as opposed to technical discussions, which are held with sectors including the poorly performing energy and tax sectors as well as failure to implement structural reforms in state owned entities or make any headway in privatisation.

Policy discussions are held under the leadership of the two economic team leaders – Minister of Finance Muhammad Aurangzeb and Governor State Bank of Pakistan (SBP) Jameel Ahmed.

In this context it is relevant to note that the Monetary Policy Committee which met on 10 March 2025, contrary to expectations premised on a very low Consumer Price Index of 1.5 percent kept the policy rate unchanged, which no doubt led the Fund to “maintenance of sufficiently tight monetary policy to maintain low inflation.”

However, with respect to those areas that come under the jurisdiction of the Ministry of Finance the Fund referred to progress in “planned fiscal consolidation to durably reduce public debt”, which focuses attention on the 601 billion rupees Federal Board of Revenue (FBR) shortfall for the first seven months of the current fiscal year.

This is in spite of the budgeted increase in taxes on the salaried (which reduced aggregate demand thereby having a negative impact on growth) rather than on those who remain outside the tax net (the much touted Taajir Dost Scheme has been abandoned, the tax on the real estate sector and with issues surfacing relating to the farm income tax collection laws passed by the provinces) as well as sustained reliance on indirect taxes whose impact on the poor is relatively great than on the rich and explains the rise of poverty levels to 44 percent. We have been urging the government to make an in-house suggestion to the Fund notably to decrease current expenditure (allowed to rise by 21 percent in the budget for the current year) and instead of this inordinate focus on fiscal consolidation to durably reduce public debt in programme design to massively reduce budgeted outlay to elite sectors.

Disturbingly the government remains focused on increasing its revenue, the latest evidence was in ratcheting up the petroleum levy rather than passing on the decline in the international prices of petroleum and products onto the general public, which is an indirect tax though it is not credited to FBR taxes as those are part of the divisible pool, but to other taxes.

The Fund press release referred to acceleration of cost reducing reforms to improve energy sector viability.

The Prime Minister’s Office on 15 March issued a press release stating that the rise in petroleum levy would enable the government to implement an electricity tariff reduction, which would reportedly be announced by him on 23 March.

It is not clear whether the common man would have benefitted more if the levy had not been raised rather than if electricity prices are reduced. It is important to note that many argue that the PM’s press release indicates that the Fund approved a planned decrease in electricity prices based on multiple factors including renegotiations of contracts with some Independent Power Producers (though talks with the Chinese IPPs to reprofile loans which would extend the amortization period at a higher rate of return are stalled) as well as reduced fuel import costs.

Others argue that given the 2.5 trillion rupee circular debt and the reported intent of the government to borrow 1.23 trillion from commercial banks to retire part of it with the objective of reducing interest payments that are part of the tariff paid by consumers yet reports suggest that the banks already overly exposed to the power sector are reluctant to extend more loans and that too below KIBOR. Perhaps the Fund has adopted a wait-and-see policy on this count.

And finally, the pace of the pledged structural reforms has been very slow and so far the onus of the Fund programme has been borne entirely by the public as in all previous programmes – through higher taxes on income and goods and services – while expenditure has not been curtailed. This must change without any further loss of time.

Copyright Business Recorder, 2025