IMF defends Pakistan bailout, rejects Indian objections

ISLAMABAD: The International Monetary Fund (IMF) Thursday defended its recent disbursement to Pakistan under the Extended Fund Facility (EFF), rejecting Indian concerns that the bailout could be misused by Islamabad.

The IMF Executive Board approved on May 9 a fresh $1.4 billion loan to Pakistan under its climate resilience fund and approved the first review of its $7 billion programme, freeing about $1 billion in cash.

Addressing a presser, the IMF spokesperson Julie Kozack said, “Board approved the disbursement after finding that Pakistan had met all performance targets and made progress on structural reforms.”

She stressed that IMF funds were intended solely to address balance of payments issues and are channeled to the central bank, not used for budget financing or military purposes.

“There are also strict safeguards in place,” Kozack said, pointing to conditionalities including a zero limit on central bank lending to the government and a focus on strengthening fiscal management.

Responding to questions about India’s objection and removal of its executive director from the Fund, Kozack declined to comment, saying such appointments are the prerogative of individual member states.

India had asked the IMF for a broader review of its loans to Pakistan, as tension builds between the nuclear-armed neighbours.

At the end of her briefing, Kozack expressed condolences for the lives lost in recent tensions between Pakistan and India and called for a peaceful resolution.

The May 9 review approval brings disbursements to $2 billion within the $7 billion program. No fresh money from the resilience loan was made immediately available.

“Pakistan’s policy efforts under the (programme) have already delivered significant progress in stabilising the economy and rebuilding confidence, amidst a challenging global environment,” the IMF said in a statement following the approval.

Mehtab Haider adds: The inability to finalise number crunching both for revenues and expenditures for the Budget 2025-26 aligned with the IMF conditions has forced the government to revise the date for budget presentation from June 2 to June 10.

Earlier, the budget was scheduled to be presented before Eidul Azha on June 2.

The government has also postponed the Annual Coordination Committee (APCC) for recommending the macroeconomic and development size of the budget to the National Economic Council (NEC).

The committee was initially scheduled to meet next week on Monday (May 26).

The visiting IMF team accomplished this round of talks without finalizing any framework for the next budget. The outgoing IMF Mission Chief Nathan Porter is going to leave for Washington but the newly assumed Mission Chief Ma Eva will continue to stay in Islamabad to finalise the budgetary framework.

Finalization of development budget in the form of PSDP has remained one of the contentious issues, paving the way for extending the budget date.

Deputy Prime Minister Ishaq Dar Friday chaired a meeting to finalize the size of the PSDP but it could not be finalized yet.

Now, another important meeting is expected to be held under the chairmanship of Premier Shehbaz Sharif, probably in Lahore this weekend, to finalise the budget.

When this reporter contacted Deputy Prime Minister Ishaq Dar and inquired about the finalisation of the next PSDP, he briefly said the work was still in progress.

Sources said the Ministry of Finance had indicated the development budget of Rs921 billion for the upcoming budget, but Planning Minister Ahsan Iqbal had sought an increase in its size beyond Rs1 trillion mark.

“There is no fiscal space available keeping in view the tied expenditure side,” said the sources, and added that for the water sector, so far Rs140 billion funding had been indicated, but the requirement of Dasu only stood at Rs200 billion.

For NHA, the government indicated development funds of Rs174 billion. It has also been highlighted that P3A (Public Private Partnership Authority) has failed to achieve any desired results since its inception.

On revenue collection, the IMF made it clear that the next year’s target would be linked to the expenditure side. Now the FBR’s target will be hovering around Rs14.1 trillion to Rs14.3 trillion, depending upon the overall expenditure side requirements.

With the consent of the IMF, the FBR’s tax collection target was revised downward from Rs12.97 trillion to Rs12.33 trillion for the current fiscal year. Now, independent tax experts believe that the FBR might go close to Rs11.9 trillion, but it would be really difficult to touch the Rs12 trillion mark on June 30, 2025.

If one assumes FBR’s collection of Rs12.3 trillion in the outgoing fiscal year, the nominal growth of 10 percent could fetch Rs12.5 trillion, but the remaining revenue of Rs0.7 trillion would require both enforcement and taxation measures. However, the IMF raised questions about the basic assumption of reaching the Rs12.5 trillion mark and suggested that the FBR could touch Rs12.2 trillion with the help of nominal growth.

The FBR argued that they could fetch Rs400 billion through digitization and enforcement. Now the IMF raises a question about how the remaining Rs500 to Rs600 billion is going to be materialised.

Reuters adds: Meanwhile, a top government source in New Delhi told Reuters on Friday that India would push the Financial Action Task Force (FATF), a global financial crime watchdog, to add arch-rival Pakistan back to its “grey list” and oppose upcoming World Bank funding to Islamabad.

The source said India would not miss any opportunity “in opposing Pakistan and the next one was funding by the World Bank, and we will raise our protest there too.”

Pakistan’s finance ministry did not immediately respond to a request for comment.

Pakistan has denied any hand in the Kashmir attack and has said India’s move of keeping the Indus Waters Treaty in abeyance is an act of war.

Pakistan was taken off the FATF grey list in 2022, giving it a clean bill of health on terrorist financing and boosting its reputation among lenders, essential for Pakistan’s crisis-hit economy.