In Islamabad, the interim federal government has decided to implement significant spending reductions with the aim of achieving a surplus of Rs600 billion on behalf of the provinces during the current fiscal year. This move is in response to meeting the International Monetary Fund’s (IMF) condition of reducing the financial deficit of the central government.
The decision also includes a halt on launching any new projects under the annual development program to cut expenses. However, the ongoing development projects will continue to receive necessary funding.
To address the financial situation, it has been determined that the provinces will share in the subsidy costs for electricity, gas, wheat, and fertilizers in proportion to their populations. Wheat and fertilizers had been imported at the request of the provincial governments, and their share of these costs had not been paid for several years.
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Additionally, preparations are underway to involve provinces in development projects and subsidies, and if necessary, the finance ministry may recommend changes to the National Finance Commission (NFC) Award.
The federal government’s objective is to significantly reduce expenditure before negotiations with the IMF in November, as part of the IMF’s loan program requires the provinces to demonstrate a surplus of Rs600 billion for the current fiscal year. Pakistan is set to receive another $700 million in November as part of its $3 billion loan program if recommended by the IMF’s review mission.
Despite facing challenges in meeting certain benchmarks, there is a high likelihood that Pakistan will receive the next tranche from the IMF. The IMF’s Executive Board may grant a waiver if it deems the program to be viable, even if there have been missed structural benchmarks and indicative targets within the overall performance.
In June 2023, Pakistan secured a nine-month Stand-By Arrangement (SBA) from the IMF worth $3 billion, marking a significant achievement following the failure to revive the previous $6 billion program. This SBA exceeded expectations in terms of both its duration and size.
Under the $3 billion SBA, Pakistan received $1.2 billion in July 2023 and expects an additional $700 million upon successfully completing the first review. The government is also exploring commercial loans totaling $5 billion and an additional $0.7 billion from various sources, aiming for total projected foreign inflows of $26 billion for FY24.
