The International Monetary Fund (IMF) has opposed the Pakistani government’s proposal to secure Rs1.25 trillion in loans from commercial banks to address the rising circular debt in the power sector. The lender has questioned how the Central Power Purchasing Agency (CPPA) will manage repayments, particularly if electricity demand declines in the coming years.
This development comes as Pakistan and the IMF prepare to adjust the country’s macroeconomic and fiscal framework for the 2024-25 fiscal year during policy-level discussions set to begin on Monday.
Sources indicate that the IMF has rejected any proposals for tax reductions, particularly concerning the General Sales Tax (GST), as suggested by the Power Division. Technical discussions between both sides have been largely completed, and policy-level negotiations are expected to run from Tuesday to Friday.
On Friday, discussions focused on Pakistan’s macroeconomic framework, including potential revisions to real GDP growth and inflation projections. The government initially projected 3.5% GDP growth and 12.5% inflation for the current fiscal year. However, due to underperformance in the Large-Scale Manufacturing (LSM) and agriculture sectors, GDP growth may fall between 1% and 2%.
The agriculture sector, particularly cotton and maize production, has struggled due to climate change impacts, with wheat production expected to range between 26.5 and 27 million tonnes, lower than last year’s bumper crop. With LSM growth declining, the services sector is now seen as the primary driver of economic growth.
Inflation, initially projected at 12.5%, has dipped significantly to 1.6% month-on-month and is now expected to remain between 6% and 6.5% for the fiscal year. These economic shifts will likely lead to revisions in revenue targets, requiring adjustments in the fiscal framework based on emerging macroeconomic realities.
