Islamabad: The government has committed to the International Monetary Fund (IMF) to restrain non-priority spending, including through energy sector measures aimed at credibly containing energy sector subsidies, the public wage bill, and pensions.
In a Letter of Intent (LoI) jointly signed by Finance Minister Ishaq and State Bank of Pakistan (SBP) Governor Jameel Ahmed, it was stated that since the completion of the combined seventh and eighth reviews under the 2019–23 Extended Fund Facility (EFF) in August 2022, the economy has faced a series of exogenous shocks – most notably the catastrophic floods during the 2022 monsoon season and the international commodity price hike in the wake of the Russian war in Ukraine. Critical infrastructure and crop production have been damaged, and livelihoods have been upended. Economic activity has stalled, and inflation, including for food items, is very high.
Despite our efforts to reduce imports and the trade deficit, reserves have declined substantially due to scheduled debt service and scarcity of market financing against elevated sovereign spreads. At the same time, the Kerb rate diverged considerably from the interbank rate against strong foreign exchange (FX) demand.
