The International Monetary Fund (IMF) has set eight new structural benchmarks for Pakistan, including an anti-corruption institutional framework for examining the wealth of public office holders like cabinet members, legislators, and bureaucrats. The benchmarks are intended to help Pakistan avoid a volatile political environment and economic crises to its economy.
The IMF has now demanded Islamabad to raise the weighted average power price in October 2022 by nearly 10% over the end-December 2021 level in order to restart the IMF programme after a seven-month hiatus during which the PTI-led government granted unfunded subsidies.
- The first benchmark IMF set is by the end of June 2023, the IMF wants to see nine million families on the Benazir Income Support Programme (BISP) Kafalat recipient list using the National Socio-Economic Registry (NSER).
- The second benchmark is the completion of the combined annual re-basing (AR) for the fiscal years FY22 and FY23, which will go into effect on October 1, 2022.
- The third benchmark is the submission to NEPRA of petitions for the fiscal years FY23-July FPA by the end of August and FY23-Q1 Quarterly Tariff Adjustment (QTA) by the end of October, which will ensure full recovery of the revenue requirement (including lost revenue from the delayed first-stage Annual Rebasing FY22-23 in July 2022)
- The fourth step is the adoption of an extensive strategy to address the high levels of non-performing loans (NPLs) in some banks. In addition to requiring bank-specific action plan for reducing NPLs and writing off fully provisioned NPLs by the end of June 2023
- The fifth step is to start the orderly liquidation of one or both of the two undercapitalized private sector banks by the end of May 2023.
- The submission of revisions to the cabinet to bring Pakistan’s early intervention, bank resolution, and crisis management systems into compliance with global best practices by the end of October 2022 is included in the IMF’s sixth structural benchmark.
- The seventh is the operationalization of a Central Monitoring Unit (CMU) within the Ministry of Finance until the end of January 2023.
- The eighth is the publication of a thorough review of the institutional framework for combating corruption (including the National Accountability Bureau) by a task force with participation and input from reputable independent experts with international experience and civil society organizations.
According to the IMF staff report, Pakistan must once more deal with major imbalances and rising risks due to a volatile political climate and external shocks.
Large fiscal policy lapses, a tardy monetary reaction to inflationary pressures, and spillovers from the conflict in Ukraine are all reflected in the domestic and external imbalances.
As a result, the current account and fiscal deficits have grown significantly, reserves have decreased to a low level, and inflation has reached its highest point in decade.
The new government has committed to a set of corrective policies to ensure financial stability, but for the policy strategy to be successful, there must be strong ownership, hard implementation, and domestic support.