The International Monetary Fund (IMF) said on Monday Pakistan had agreed to roll back subsidies to the oil and power sectors ahead of resumption next month of a review of the agency’s support for the country.
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“We agreed that prompt action is needed to reverse the unfunded subsidies which have slowed discussions for the seventh review,” the IMF said in a statement after discussions with visiting Pakistani Finance Minister Miftah Ismail in Washington.
From April to June, Pakistan is giving more than $2 billion of subsidies to the oil and power sectors. According to former finance minister Shaukat Tarin, the IMF has asked how the government can fund that without risking a high fiscal deficit.
“Based on the constructive discussions with the authorities in Washington, the IMF expects to field a mission to Pakistan in May to resume discussions over policies for completing the seventh EFF review,” the IMF said, referring to its Extended Fund Facility program.
This covers $6 billion of support that the IMF agreed in 2019 to extend to Pakistan. Payment of the funds has been slowed down several times because of IMF concerns over policy in Islamabad, including budgetary measures.
A new Pakistani government that took over this month says it is facing enormous economic challenges, especially how to find a way to fund the subsidies, which were created by ousted prime minister Imran Khan during his last weeks in office.
Ismail, the finance minister, said before leaving for Washington that, to revive the IMF program, Islamabad would cut both ordinary expenditure and its funding for development projects.
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