Pakistan, IMF and politics behind the numbers

Pakistan's relationship with the International Monetary Fund (IMF) dates back decades, with the country entering its first Stand-By Arrangement in 1958. Over the years, Pakistan has entered 25 IMF arrangements, cycling between stabilization, reform, and balance-of-payments difficulties. The most recent cycle includes the 2013 Extended Fund Facility, the incomplete 2019 EFF, the 2023 Stand-By Arrangement, and the ongoing 2024 Extended Fund Facility, supplemented by the Resilience and Sustainability Facility.

While Pakistan has repeatedly created conditions that bring it to the IMF – weak revenue mobilization, persistent fiscal deficits, energy sector inefficiencies, external imbalances, low savings and investment, and policy reversals – there is a question about the impartiality of IMF decision-making. Critics have raised concerns about whether IMF decision-making is purely technocratic and free from political-economy considerations and the influence of powerful shareholders.

In fact, the IMF's Independent Evaluation Office (IEO) has examined this issue, concluding that political pressure from influential shareholders can impact IMF decisions. Surveys of IMF mission chiefs and heads of departments revealed that 48% experienced strong political pressure occasionally, and 7% reported their technical judgment being overridden by political pressure frequently or always.

The relevance of this issue has become more pronounced in 2026, as IMF programmes increasingly touch upon areas beyond traditional balance-of-payments stabilization, such as taxation, energy pricing, state-owned enterprises, investment, competition policy, and climate policy. Pakistan's current 37-month Extended Fund Facility (EFF) approved in September 2024, worth around $7 billion, extends beyond fiscal and monetary stabilization to cover energy-sector viability, structural reforms, social protection, and climate-related reforms.

An illustrative example of this expansion is the recent fuel price increase due to rising international oil prices. In March, the government initially increased domestic fuel prices by 20%, but later delayed further hikes by providing temporary support to oil marketing companies. The IMF's staff report indicated that this created fiscal space of Rs152 billion through savings, such as Rs27 billion from reduced official-vehicle fuel allowances, Rs100 billion from the Public Sector Development Programme (PSDP), and Rs25 billion from State-Owned Enterprise (SOE) grants.

The IMF subsequently recorded that the temporary support would be unwound, with domestic fuel prices aligned with international prices followed by regular adjustments.

However, there is a distinction between temporary arrangements like this and permanent subsidies proposed by the Jamaat-e-Islami, which argues that subsidies designed to prevent domestic fuel-price adjustments are distortionary and fiscally unsustainable. The question arises: if Pakistan allows international oil prices to pass through without subsidies, could the lost fiscal revenue be replaced by credible expenditure savings and other revenue measures?

This is a crucial consideration, as the petroleum levy target is around Rs1.5 trillion annually. The arithmetic shows that substantial savings would be needed to replace this revenue, highlighting the complexity of the issue.