Govt, IMF agree on need to transfer social, development duties to provinces
A day after concluding its staff visit to Pakistan, the International Monetary Fund (IMF) on Saturday said it and the government had agreed on the need to transfer “greater social and development responsibilities to provinces”.
The unscheduled visit from Nov 12 to Nov 15 discussed a $7-billion bailout within six weeks of its approval by the IMF board, but came too early for the first review of the Extended Fund Facility (EFF), due in the first quarter of 2025.
Talks between Pakistan and the IMF concluded on Friday under tight secrecy from both sides, with a rare revision of fiscal data turning Punjab into a cash surplus province from a deficit one only a fortnight ago.
A wrap-up meeting with the Pakistani team, led by Finance Minister Muhammad Aurangzeb, also focused on the country’s desire to increase its loan programme size and discussed climate financing, under which Pakistan has applied for an additional loan of $1.2 billion.
It was for the first time that provinces were now directly part of the talks with the IMF under a loan programme.
In an end-of-mission statement issued on Saturday, IMF mission chief Nathan Porter said: “We agreed with the need to continue prudent fiscal and monetary policies, revenue mobilisation from untapped tax bases, while transferring greater social and development responsibilities to provinces.”
The Fund’s Executive Board had also stressed “broadening the tax base” in September.
The IMF said it was “encouraged by the authorities’ reaffirmed commitment to the economic reforms supported” by the 2024 EFF.
Porter termed discussions with Pakistani authorities on economic policy and reform efforts as constructive, noting they aimed to “reduce vulnerabilities and lay the basis for stronger and sustainable growth”.
He highlighted that “structural energy reforms and constructive efforts” were critical to restore the sector’s viability.
During the recent talks, the IMF and the government were reportedly in a fix over energy sector issues amid rising fears of a potential default-like situation in the Pakistan State Oil (PSO) and two gas companies.
Porter also urged the government to “take steps to decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector”.
The IMF official emphasised that a strong programme implementation could create a “more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis”.
“The next mission associated with the first EFF review is expected in the first quarter of 2025,” the statement concluded.
Pakistan has struggled for decades with boom-and-bust economic cycles, prompting 23 IMF bailouts since 1958.
A day earlier, sources said the IMF mission would give its formal feedback to the authorities in a few days, but officials said Pakistan had time until February 2025 to make up for revenue shortfalls that stood at Rs190bn in the first four months (July to October) of the current fiscal year.
The formal review talks on biannual targets would be arranged by the end of February or early March to determine whether Pakistan qualified for the disbursement of a $1bn tranche, subject to compliance with structural benchmarks.
Provinces come under discussion
At the last leg of engagements, it emerged that Pakistan had met another quarterly target for provincial cash surplus, but only after the Punjab government said it concluded the first quarter of FY25 with a Rs40bn cash surplus, instead of a Rs160bn deficit as reported.
Still, Punjab’s Rs40bn surplus is the lowest among the three other provinces, which had already complied with their cash surplus commitments.
Sources said that smaller provinces contested the IMF’s desire to pull out of wheat support price or subsidised issue price, insisting that it could create a food security problem, particularly in underdeveloped markets like Khyber Pakhtunkhwa and Balochistan, unlike those visualised by the IMF staff.
The IMF team appeared willing to appreciate provincial problems, particularly capacity constraints and promised to support technical consultants, not only for agriculture tax but also for provincial financing to the Benazir Income Support Programme, higher education and devolution of provincial development projects from the federal budget.
Sindh has reportedly yet to decide to finance these additional responsibilities.
Additional input from Reuters