Pakistan agrees to reverse unfunded subsidies ahead of talks on IMF review

The International Monetary Fund (IMF) said on Monday Pakistan agreed to reverse unfunded subsidies ahead of talks to resume the 7th review in May.

"We agreed that prompt action is needed to reverse the unfunded subsidies which have slowed discussions for the 7th review," the IMF said in a statement after discussions with the visiting Pakistani finance minister in Washington.

The Fund said that Pakistan had agreed to roll back subsidies to the oil and power sectors ahead of resumption next month of a review of the agency's support for the country.

From April to June, Pakistan is giving more than $2 billion of subsidies to the oil and power sectors. According to former finance minister Shaukat Tarin, the IMF has asked how the government can fund that without risking a high fiscal deficit.

Pakistan also sought an increase in the size and duration of its $6 billion IMF programme, the country's Finance Minister, Miftah Ismail, said on Monday.

Ismail made the comment in a video statement issued by his ministry following talks with the IMF in Washington.

"Based on the constructive discussions with the authorities in Washington, the IMF expects to field a mission to Pakistan in May to resume discussions over policies for completing the 7th EFF review," the IMF said, referring to its Extended Fund Facility program.

"The authorities have also requested the IMF to extend the Extended Fund Facility (EFF) arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the program objectives," the statement added.

This covers $6 billion of support that the IMF agreed in 2019 to extend to Pakistan. Payment of the funds has been slowed down several times because of IMF concerns over policy in Islamabad, including budgetary measures.

A new Pakistani government that took over this month says it is facing enormous economic challenges, especially how to find a way to fund the subsidies, which were created by ousted prime minister Imran Khan during his last weeks in office.

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