IMF Demands Transparency in Pakistan’s New Investment Policy

The International Monetary Fund (IMF) has requested that Pakistan provide a draft of its forthcoming investment policy and ensure transparency in the operations of the Special Investment Facilitation Council (SIFC). This comes as Pakistan seeks a new bailout package from the global lender.

Established in June last year, the SIFC was designed under an “economic revival plan” to capitalise on key sectors and attract foreign direct investment (FDI). The council aims to create a favourable business environment and offer a one-stop solution for investors. However, during the current assessment mission by the IMF, formal talks with Pakistani authorities have yet to commence, with divergent views on the macroeconomic framework for the 2024–25 budget noted.

Pakistani authorities informed the IMF that the new investment policy is under preparation and will be announced after thorough deliberations. The IMF emphasised the need for transparency in the SIFC’s operations and inquired about potential investments in various projects, particularly the privatisation of Pakistan International Airlines (PIA) and other state-owned enterprises (SOEs).

The IMF has also expressed concerns about inflation and tax exemptions. They highlighted the necessity of maximising non-tax revenues and proposed increasing the Petroleum Development Levy (PDL) to boost collections. Additionally, the IMF recommended imposing an 18% GST on petrol and diesel alongside the PDL.

There are conflicting macroeconomic projections for the next fiscal year. The IMF projects a real GDP growth rate of 3.5% with CPI-based inflation at 12.7%, while Pakistan’s Ministry of Finance envisions GDP growth between 3.7% and 4% and inflation averaging between 11% and 12%.

Pakistan has formally requested a new bailout package of USD 6 to 8 billion under the Extended Fund Facility (EFF), potentially augmented by climate finance. If approved, this would be Pakistan’s 24th IMF bailout programme. The previous short-term USD 3 billion programme helped avert default and stabilise the economy, reducing inflation from a record high of 38% last May to around 17% in April.

The outcome of the current IMF mission remains uncertain, with discussions ongoing regarding the duration, instrument, and size of the next bailout package. While Pakistan’s economy has shown signs of stabilisation, it still faces challenges, including a high fiscal deficit and stagnating growth.