The International Monetary Fund (IMF) has imposed a series of stringent conditions on Pakistan, particularly regarding energy subsidies and provincial budgets, following Punjab’s decision to provide electricity subsidies of Rs45 to Rs90 billion for two months.
According to a report in Express Tribune, the IMF has deemed this move “fiscally reckless” and has demanded an end to the temporary subsidy by September 30th.
Furthermore, the IMF has stipulated that no provincial government can introduce any new subsidies during the 37-month Extended Fund Facility (EEF) program.
This effectively puts a halt to Punjab’s planned Rs700 billion solar panel distribution scheme for consumers using up to 500 units of electricity per month.
These conditions contradict previous claims that provinces could implement electricity subsidies and cast doubt on Prime Minister Shehbaz Sharif’s encouragement of other provinces to follow Punjab’s lead.
The current high electricity prices, driven by factors like poor governance, high line losses, expensive deals, and subsidies burdening high-consumption users, have made electricity unaffordable for most residential consumers.
The IMF has also introduced a condition requiring all provincial governments to refrain from any policy or action that could undermine or contradict commitments made under the $7 billion program.
This effectively limits the fiscal autonomy of the provinces, who had previously committed to signing a National Fiscal Pact by September to assume responsibility for certain federal expenditures.
The provinces had also pledged to improve their agriculture income tax, property tax, and sales tax on services. The new condition, however, prevents them from taking unilateral actions in these areas.
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Another critical condition mandates that provinces consult with the Finance Ministry before implementing any measures that could affect or undermine structural benchmarks and key actions agreed upon with the IMF. This unprecedented level of oversight reflects the IMF’s focus on provincial policies and budgets within the new program, which covers five budgets and policies of five governments.
The Finance Ministry is currently working to secure a date for the IMF Executive Board meeting to approve the $7 billion loan. This week is crucial for securing the necessary approvals for new loans and rollovers.
