Pakistan’s Finance Minister Miftah Ismail, who landed back in Islamabad after unsuccessful negotiations with the International Monetary Fund, said the country needs to implement a tight monetary policy and consolidate its fiscal position to revive and extend the $6 bn Extended Fund Facility.
Pakistan’s week-long talks with the IMF, held in Doha, were aimed at convincing it into an agreement on polices and revive the stalled bailout of $6 bn through the release of the $1 bn tranche and extension of the programme by two years with an additional EFF of $ 2bn.
However, contrary to Pakistan’s hopes, the IMF has made the resumption of the programme conditional on the reversal of fuel and energy subsidies introduced by the previous PTI government, which have been criticised and termed unsustainable.
“IMF and Pakistan discussed targets for FY23, 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,” Ismail said.
“Thus, government is committed to reducing the budget deficit in FY23,” he added.
Ismail said that the government is committed to revive the IMF programme, which is pivotal to put Pakistan back on a sustainable growth path.
The Finance Division said: “The IMF expressed concern on the fiscal and current account situation arising from the government’s actions, especially electricity and fuel subsidies and slippages. The meetings identified the areas of divergence and corrections required in the current account and fiscal deficit.”
The statement of the Finance Division and the Finance Minister echoed with the statement of the IMF, which also emphasised the urgency of concrete policy actions by the Pakistan government.
“IMF emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve programme objectives,” read an IMF statement.
“The mission held highly constructive discussions with the Pakistani authorities, during which, considerable progress was made on various matters, 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 upon in the last year review, partly reflecting the fuel and power subsidies announced by the authorities in February,” it added.
Now, with clear instruction from the IMF, the Shehbaz Sharif government looks to take difficult economic decisions, which may be a major blow for its political standing as rise in inflation, fuel and energy prices will not be welcomed by the people and will definitely have adverse effects for it.
On the other hand, Imran Khan will make full use of such decisions and will create more public uproar against the government, that ousted him off power, claiming to bring better days for the country.