ISLAMABAD: Pakistan’s ongoing discussions with a visiting staff mission of the International Monetary Fund (IMF) are expected to conclude positively later this week, paving the way for the release of around $1.2 billion under the Fund’s two concurrent programmes — the $7 billion Extended Fund Facility (EFF) and the $1.4 billion Resilience and Sustainability Facility (RSF).
Informed sources said the two sides were finalising the Memorandum of Economic and Fiscal Policies (MEFP) after reaching agreement on the substantive parameters of the biannual review.
The IMF staff mission, led by Iva Petrova, is expected to conclude its visit within the next few days, according to official sources. No major new demands have been placed on Pakistan, with discussions largely focused on adjustments required to address earlier slippages.
The revenue target has reportedly remained unchanged, with greater emphasis on achieving the half-yearly target following strong tax collection during the first quarter, which exceeded the agreed target.
The development comes as the government faces challenges in finalising its liquefied natural gas (LNG) import plan for the December-February winter period amid a difficult international supply environment linked to the US-Iran conflict.
Gas companies and the Petroleum Division had sought at least 22 LNG cargoes for the three-month period. However, the energy task force, headed by Lt Gen Zafar Iqbal, has indicated that only 10 to 12 cargoes, each of around 100 million cubic feet, could be arranged on a best-effort basis through diplomatic and logistical channels.
The proposed plan will be submitted to the prime minister for approval, as each spot cargo costs around $100 million and requires coordination with the Ministry of Finance and the State Bank of Pakistan.
The LNG import plan is particularly significant because it could affect the current account targets agreed with the IMF. Sources said actual imports could remain lower than the proposed allocation, potentially at around seven to eight cargoes during the three winter months, depending on market conditions. This would be closer to the level preferred by the Ministry of Finance.
Targeted Energy Subsidies
Pakistan and the IMF have also agreed to accelerate preparations for targeted subsidies in the gas sector through the social protection system. The objective is to contain the growing gas-sector circular debt and shift BISP-based subsidies for low-income electricity consumers into the implementation phase from January 2027, following the introduction of the revised base tariff.
Distribution companies have already filed tariff petitions during the IMF discussions to demonstrate their preparedness for the proposed reforms.
The government has assured the Fund that it will work to reduce cross-subsidies from the industrial sector and contain gas-sector circular debt, which has reached approximately Rs3.6 trillion. This includes around Rs1.8 trillion in principal payables, with a similar amount accumulated in interest and late-payment surcharges.
Gas companies have reported that the protected category for domestic consumers, under which gas prices range from Rs200 to Rs350 per mmBtu, has widened the pricing gap and contributed to the accumulation of circular debt.
During the winter months, only four of the 12 consumer slabs reportedly covered the cost of gas supply, while the remaining eight remained below breakeven levels for around eight months despite the introduction of substantial fixed charges.
Possible Waivers for Slippages
Although the agreed measures are not being classified as formal prior actions, the government may need to take several steps between the conclusion of the current talks and the IMF Executive Board meeting.
These measures would help ensure smooth processing of Pakistan’s case for the $1.2 billion disbursement and facilitate requests for waivers related to a few unavoidable slippages against targets set for the end of June 2026.
Under an IMF structural benchmark, Pakistan is required to undertake a major policy reform by end-January 2027, replacing the existing budgeted tariff-differential subsidy and cross-subsidy mechanism with a targeted and budgeted subsidy framework for low-income consumers through the Benazir Income Support Programme (BISP).
The World Bank is assisting the government in linking electricity consumers with the National Socio-Economic Registry (NSER). The government has committed to completing the technical linkage and validity checks by the end of November to establish eligibility criteria for targeted subsidies.
The IMF has also called for greater transparency in the Inland Freight Equalisation Margin (IFEM), a mechanism used to maintain uniform petroleum prices across the country.
Story by Khaleeq Kiani
