Pakistan-IMF discussions remain inconclusive

In the simplest words, Pakistan-IMF discussions held in Doha remained inconclusive. The International Monetary Fund (IMF) on Wednesday emphasized upon Pakistan the urgency of removing fuel and energy subsidies to achieve program objectives.

The incumbent government does not seem ready to withdraw subsidies.

According to the IMF, the mission held highly constructive discussions with the Pakistani authorities to reach an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform program.

It said the considerable progress was made during the discussions, 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, 2022 was a welcome step. On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February this year."

Meanwhile, Foreign Minister Bilawal Bhutto-Zardari said the ongoing bailout deal between Pakistan and the IMF was "outdated" given a number of global crises.

"This IMF deal is not based on ground realities, and the context has absolutely changed from the time that this deal was negotiated," Bilawal told Reuters on the sidelines of the World Economic Forum.

"This deal is a pre-Covid deal. It is a pre-Afghanistan fallout deal. It is a pre-Ukrainian crisis deal. It is a pre-inflation deal," said Bilawal.

Terming the deal "outdated" he said it would be unfair and unrealistic to expect a developing country like Pakistan to navigate geopolitical issues under the current agreements.

"We have to engage with the IMF and we have to keep Pakistan's word to the international community ... However, going forward, it is very legitimate for Pakistan to plead its case," Bilawal said.

The newly-elected government began talks with the Fund a week ago over the release of a US$ one billion tranche under an Extended Fund Facility, a process slowed by concerns about the pace of economic reforms in the country.

A US$6 billion IMF bailout package signed in 2019 has never been fully implemented because the government reneged on agreements to cut or end some subsidies and to improve revenue and tax collection.

Over the past weeks as the government has failed to take decisive economic decisions, most prominent being reversal of fuel subsidies.

Analysts and experts have linked the economic pressure to uncertainty over the continuation of the IMF loan program coupled with a rising oil import bill and widening trade deficit.

In recent meetings with Pakistan, the IMF linked the continuation of its loan program with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif has multiple times rejected summaries by the Oil and Gas Regulatory Authority and the finance ministry to increase fuel prices.

The PTI had announced a four-month freeze until June 30, 2022 on petrol and electricity prices in February this year as part of a series of measures to bring relief to the public.

PML-N and other political parties, part of the new coalition government were critical of Imran Khan's government for derailing the IMF program through unfunded fuel subsidies, but despite being in power for nearly six weeks, have not reversed these subsidies.