ISLAMABAD: Following the conclusion of its staff visit to Pakistan, the International Monetary Fund (IMF) announced on Saturday that it and the Pakistani government have agreed on the necessity of transferring “greater social and development responsibilities to provinces.”
During the unscheduled visit from November 12 to November 15, discussions focused on a $7-billion bailout, which had been approved by the IMF board six weeks earlier. These talks occurred ahead of the first review of the Extended Fund Facility (EFF), which is due in the first quarter of 2025.
Talks between Pakistan and the IMF, which concluded on Friday, were held under tight secrecy. Notably, a rare fiscal data revision transformed Punjab from a deficit province to a cash surplus province in just two weeks.
In an end-of-mission statement on Saturday, IMF mission chief Nathan Porter stated, “We agreed on the need to continue prudent fiscal and monetary policies, revenue mobilization from untapped tax bases, while transferring greater social and development responsibilities to provinces.”
The IMF’s Executive Board had also emphasized the importance of “broadening the tax base” in September.
Porter noted that the IMF was “encouraged by the authorities’ reaffirmed commitment to the economic reforms supported by the 2024 EFF.” He described discussions with Pakistani authorities on economic policy and reform efforts as constructive, aiming to “reduce vulnerabilities and lay the basis for stronger and sustainable growth.”
He highlighted that “structural energy reforms and constructive efforts” were crucial to restoring the sector’s viability. During the recent talks, both the IMF and the government faced challenges over energy sector issues, amid rising fears of a potential default-like situation in Pakistan State Oil (PSO) and two gas companies.
Porter urged the government to “decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector.” He emphasized that strong program implementation could create a “more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis.”
The next IMF mission, associated with the first EFF review, is expected in the first quarter of 2025.
Pakistan has grappled with boom-and-bust economic cycles for decades, prompting 23 IMF bailouts since 1958. A wrap-up meeting on Friday, led by Finance Minister Muhammad Aurangzeb, focused on increasing the loan program size and discussed climate financing, under which Pakistan has applied for an additional $1.2 billion loan.
It was the first time provinces were directly involved in talks with the IMF under a loan program. Sources indicated that the IMF mission would provide formal feedback to the authorities soon. Officials noted that Pakistan has until February 2025 to address revenue shortfalls, which stood at Rs190bn for the first four months (July to October) of the current fiscal year.
Formal review talks on biannual targets are scheduled for late February or early March to determine if Pakistan qualifies for the disbursement of a $1bn tranche, subject to compliance with structural benchmarks.
Provinces Come Under Discussion
During the final engagements, it was revealed that Pakistan had met another quarterly target for provincial cash surplus. The Punjab government reported a Rs40bn cash surplus for the first quarter of FY25, instead of the previously reported Rs160bn deficit. Despite this, Punjab’s surplus is the lowest among the four provinces, which had already met their cash surplus commitments.
Smaller provinces contested the IMF’s suggestion to eliminate wheat support or subsidized issue prices, citing potential food security issues in underdeveloped markets like Khyber Pakhtunkhwa and Balochistan. The IMF appeared willing to understand provincial challenges, particularly capacity constraints, and promised support for technical consultants, agriculture tax, and provincial financing for programs like the Benazir Income Support Programme, higher education, and the devolution of provincial development projects from the federal budget.
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