The International Monetary Fund (IMF) has emphasized the need for “strong cost-side reforms” to restore the viability of Pakistan’s energy sector. In its staff report for the second and final review under the recently-concluded $3-billion Stand-By Arrangement, the IMF outlined several recommendations.
Firstly, Pakistan should aim to meet its fiscal year 2023-24 circular debt management plan (CDMP) target of Rs2.3 trillion without accumulating further debt stock. This requires timely notification of the FY25 annual rebasing and efforts to enhance and institutionalize digital monitoring to prevent further circular debt flow.
Additionally, the IMF called for agricultural tube well subsidy reform, with a finalized plan targeted by the end of FY24.
It cautioned that delays in post-programme external financing disbursements could increase pressure on banks to finance the government, crowding out the private sector. Geopolitical factors such as higher commodity prices, disruptions to shipping, or tighter global financial conditions could also impact external stability.
Furthermore, the IMF advised Pakistan to end power subsidies for the industrial sector in the upcoming FY24-25 budget. The lender’s recommendations underscore the importance of fiscal discipline and structural reforms to address the challenges facing Pakistan’s energy sector.
Meanwhile, a technical experts’ team from the IMF has arrived in Pakistan for talks on a fresh loan programme and budget preparations. The team will stay in Pakistan for more than 10 days, with other members of the IMF mission expected to arrive on May 16.
The government has expedited preparations for budget targets and plans to seek approval of a strategic paper on the FY25 budget from the federal cabinet before the IMF mission’s arrival. This highlights the urgency of addressing fiscal challenges and implementing reforms to ensure economic stability and growth.