By Staff Reporter
ISLAMABAD: Pakistan and the International Monetary Fund are poised to conclude a review of the nation’s loan programs in the coming days, clearing the way for about $1.2 billion in disbursements, Dawn newspaper reported on Tuesday.
The two sides are finalising the Memorandum of Economic and Fiscal Policies after covering the review’s main parameters, the officials said. The IMF staff mission, led by Iva Petrova, is expected to finish its visit to Islamabad as soon as Wednesday. The funds would be released under the $7 billion Extended Fund Facility and the $1.4 billion Resilience and Sustainability Facility.
The Fund shared its first draft of the memorandum on Saturday, local media reported. If differences remain, outstanding issues would be settled in virtual talks before a staff-level agreement is signed. One senior official involved in the discussions said Pakistan hopes to sign the accord this week or next.
The Fund has made no new demands apart from adjustments to make up for past slippages, the officials said. The full-year revenue target is unchanged at 15.26 trillion rupees, with attention on the half-year goal after first-quarter tax collection beat its target.
The talks are running alongside efforts to settle an LNG import plan for December through February, with supply tight because of the war between the US and Iran. Gas companies and the petroleum division asked for at least 22 cargoes. A government task force on energy, led by Lieutenant General Zafar Iqbal, has promised no more than 10 to 12 on a best-efforts basis, using diplomatic and logistical channels.
At about $100 million per spot cargo, the plan needs approval from the prime minister, the finance ministry and the State Bank of Pakistan. Actual imports may not exceed seven to eight cargoes given market conditions, the officials said, which would bring the result closer to the finance ministry’s preferred level.
That matters because LNG purchases feed into the current-account targets agreed with the IMF. Pakistan recorded a deficit of $543 million in July and August. The Fund has pushed for a wider full-year deficit projection of as much as $4 billion, local media reported, against the finance ministry’s estimate of about $2.7 billion.
The two sides have agreed to speed up groundwork for targeted gas subsidies through the social protection program. They also agreed to move Benazir Income Support Programme subsidies for the poorest power consumers into implementation from January, after a revised base tariff takes effect. Power distribution companies filed tariff petitions during the talks to show the IMF they are ready, the officials said.
Power-sector circular debt reached 1.675 trillion rupees at the end of June, breaching a target agreed with the Fund, local media reported. The government has budgeted 830 billion rupees in power subsidies for the current fiscal year. The IMF has asked Pakistan to scrap the cross-subsidy on consumption of up to 200 units and replace it with targeted assistance.
Differences emerged last week over a three-month fuel compensation scheme and a proposed write-off of about 1.4 trillion rupees in gas-company receivables, according to local media reports. The Fund estimated the scheme’s cost could exceed 75 billion rupees. It wasn’t clear whether those disagreements have been resolved.
Gas-sector circular debt has climbed to 3.6 trillion rupees ($12.9 billion) and continues to rise. Principal payables are about 1.8 trillion rupees, with accrued interest and late-payment surcharges making up almost the same amount. The government has assured the Fund it will reduce cross-subsidies from the industrial sector and contain the debt.
Gas companies say a protected category for households, with prices of 200 to 350 rupees per million British thermal units, has widened the pricing gap and added to the debt. Only four of 12 consumer slabs covered the cost of supply in winter, while the other eight stayed below breakeven for about eight months despite substantial fixed charges.
The measures aren’t being treated as prior actions. Even so, officials may have to take several steps between the end of the talks and the scheduling of the IMF’s Executive Board meeting. They also need to seek waivers for a couple of unavoidable slippages against end-June 2026 targets.
A structural benchmark requires Pakistan to replace the budgeted tariff-differential subsidy and cross-subsidy system with a targeted framework for low-income consumers through the income-support program by the end of January 2027. The World Bank is helping link power consumers to the National Socio-Economic Registry. The government has committed to complete the technical linkage and validity checks by the end of November to determine eligibility. The IMF is also pressing for more transparency in the Inland Freight Equalisation Margin, which supports uniform petroleum pricing nationwide.
In line with IMF conditions, the government amended the State-Owned Enterprises (Ownership and Management) Policy, 2023. For all state-owned enterprises, International Financial Reporting Standards now means those notified by the Securities and Exchange Commission of Pakistan under Section 225 of the Companies Act, 2017. For entities regulated by the State Bank, the central bank’s own reporting framework under the Banking Companies Ordinance 1962 takes precedence where the two conflict.
The Finance Division, in consultation with the Auditor General, must issue a framework for financial management of statutory state-owned enterprises. All such companies must set up internal audit procedures under sections 19 and 20 of the Act.
The war, a slowing economy, higher fuel and gas prices and the Fund’s push for adjustments to the exchange rate and policy rate pose risks to Pakistan’s stabilisation effort in the months ahead. In March, the IMF reached a staff-level agreement on the previous review while warning that the Middle East war could weigh on growth, inflation and the external sector.
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