Unplanned power subsidies impede $7bn bailout

ISLAMABAD: Punjab’s unplanned power subsidies have emerged as the second most significant impediment to Pakistan’s much-anticipated $7 billion bailout from the Intentional Monetary Fund (IMF).

In July, Pakistan reached a Staff-Level Agreement (SLA) for a new 37-month $7bn Extended Fund Facility. However, the agreement will take effect following the IMF Executive Board meeting, which has yet to be placed on its schedule despite having held two meetings.

At the sidelines of the weekly seminar, the executive director of the Sustainable Development Policy Institute (SDPI), Dr Abid Suleri, said that the government should take the IMF into confidence over power subsidies announced at the federal and provincial levels.

Dr Suleri pointed out that the federal and Punjab governments may have genuine intentions in announcing power subsidies, which could catch the IMF by surprise and influence the executive board’s approval.

Pakistan ‘off IMF calendar, not agenda’

The IMF has already asked Pakistan to seek a $12bn debt rollover from friendly countries.

He emphasised that international financial lending institutions have a strong aversion to surprises, as these can completely upend the conditions and modalities established in the agreements.

“The IMF should not be surprised but rather taken into confidence as the Fund has asked to recover the full cost of electricity from consumers, and there is no change possible after reaching a SLA in July,” he said.

IMF calendar

However, diplomatic sources in Washington told Dawn that although Pakistan does not currently appear on the IMF’s calendar until Sept 18, this does not necessarily mean the country is off the Fund’s agenda.

The IMF calendar lists upcoming executive board meetings to address issues such as requests from member states for new assistance packages. Since all board members participate in these discussions, meeting organisers must distribute agendas and related documents at least two weeks before any scheduled meeting.

However, sources within the IMF have clarified that not all planned meetings are listed on the calendar. For instance, in the second week of April, the Fund published a schedule of its executive board’s meetings on its website, which did not include Pakistan.

Post-SLA scenario

Dr Suleri said the federal and Punjab governments have offered an energy subsidy, which will be managed by slashing annual development plans and various fiscal channels.

This decision follows the SLA and necessitates engaging not only with the IMF country director but also with the staff-level officials involved in the negotiations that shaped the agreement, he said, adding any delay in the IMF programme would further push the government into a fix.

He pointed out that all targets under the IMF conditions are being met except the energy subsidy and foreign deposit rollovers. In contrast, the Federal Board Revenue remained on track since July despite its sluggish performance for August and is expected to show propitious outcomes in September.

Published in Dawn, September 10th, 2024