IMF urges Pakistan to reduce government intervention as unscheduled visit ends

The International Monetary Fund (IMF) has called on Pakistan to reduce state intervention in the economy and strengthen competition, while also stressing the need for urgent energy sector reforms.

"Pakistan should take steps to decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector," a statement issued by the IMF’s mission chief, Nathan Porter said at the conclusion of an unscheduled IMF mission visit to Islamabad from November 12 to 15, 2024.

"Strong program implementation can create a more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis."

 "We had constructive discussions with the authorities on their economic policy and reform efforts to reduce vulnerabilities and lay the basis for stronger and sustainable growth," Porter's statement said.

Porter also reiterated the need for Pakistan to continue with prudent fiscal and monetary policies, focusing on revenue mobilisation from untapped tax bases. He stressed that these efforts should go hand-in-hand with transferring greater social and development responsibilities to the provinces.

The IMF delegation’s visit was primarily focused on assessing Pakistan's performance under the Extended Fund Facility (EFF) programme, which aims to support the country’s financial stability. During their visit, the IMF team met with senior officials from the federal and provincial governments, the State Bank of Pakistan (SBP), and the private sector to review economic developments and discuss the next steps for the reform agenda.

The IMF also noted that structural energy reforms are critical to restoring the energy sector’s viability. The Fund urged Pakistan to reduce state intervention in this sector, which it believes would foster private sector growth.

In addition to energy reforms, the IMF urged Pakistan to implement taxes on agricultural income starting from January 2025 and to meet its revenue target of Rs12,970 billion for the current fiscal year. It also recommended strengthening the Finance Division’s capacity to manage macro-fiscal forecasts, which are key to improving budget preparation.

As part of the discussions, the IMF also called for legal changes to limit the discretionary powers of the federal government regarding supplementary grants, although it acknowledged that some flexibility would be necessary in budget execution.

The IMF’s visit follows the standard procedure for countries under IMF programmes, aimed at reviewing economic performance and ensuring continued progress in implementing key reforms. The next review associated with the EFF programme is expected in the first quarter of 2025