Pakistan faces significant economic challenges and requires continued financial assistance beyond the current IMF program, according to a recent report released by the International Monetary Fund. The report, based on the Memorandum of Economic and Fiscal Policies (MEFP) signed by Finance Minister Ishaq Dar and State Bank Governor Jameel Ahmed, highlights the need for additional measures to address Pakistan’s long-term balance of payments pressures and structural issues. The IMF report acknowledges that resolving the country’s complex economic challenges will demand unwavering commitment to agreed-upon policies, along with continued support from external partners. To ensure macroeconomic stability and mitigate risks, the lender emphasizes the importance of consistent implementation of the program agreements.
The prospect of another IMF program is viewed as a crucial anchor for policy adjustments that will ultimately restore Pakistan’s medium-term viability and capacity to meet repayment obligations. The government has also made commitments to the public in light of the economic situation. It pledges to inform the public immediately if there are any increases in electricity rates by 5 Pakistan Rupees (PKR) per unit or gas prices surge by over 40 per cent. The circular debt in the gas sector, which is now competing with losses in the power sector, requires urgent attention. The government has promised to renegotiate power-purchase agreements with remaining power producers, including those from China, and extend their debt servicing tenors.
Regarding the gas sector, the government commits to notifying the public about any tariff adjustments determined by the Oil and Gas Regulatory Authority (Ogra). Additionally, it plans to merge the gas rates for both local and imported natural gas through a weighted average tariff. To maintain fiscal discipline, the government pledges not to permit supplementary grants for any unbudgeted spending beyond the approved level until the formation of a new government after the elections, except in the case of severe natural disasters. The government also vows not to introduce any new tax amnesties or grant further tax exemptions in the upcoming fiscal year without prior assembly approval.
Furthermore, the government has reached agreements with each province to achieve fiscal positions consistent with the fiscal year’s general government primary balance goal and maintain a focus on critical energy sector policies. This includes refraining from introducing fuel subsidies or cross-subsidy schemes in the fiscal year and beyond. To ensure monetary and financial stability, the authorities commit to a market-determined exchange rate, lowering inflation, and rebuilding foreign exchange reserves. They will avoid providing guidance or expressing preferences to market participants regarding the exchange rate and will not regulate forex demand through administrative action.
If the proper market functioning is restored, the government pledges to maintain specific interbank and open market exchange rates. The average premium between the two rates will be kept within a range of no more than 1.25 per cent and no less than minus 1.25 per cent during any consecutive five business day-period. The IMF’s assessment underscores the urgency of tackling Pakistan’s economic challenges through sustained policy adjustments and continued support from international partners. A possible successor arrangement with the IMF is seen as a critical step towards addressing structural issues and ensuring the country’s long-term economic viability.