IMF programmes’ progress report: some reflections—I

In May, International Monetary Fund (IMF) released ‘IMF Country Report No. 26/101’ at the successful completion of ‘…the third review of the Extended Arrangement under the Extended Fund Facility (EFF) and the second review of the arrangement under the Resilience and Sustainability Facility (RSF)…’ As the subsequent analysis will reveal that first of all the two programmes suffer a ‘conflict’ in terms of while they both claim to be adding to stability, growth, and resilience, the neoliberal and austerity pathway of the EFF programme, is contradictory to achieving these objectives.

Moreover, the EFF in doing so also significantly hinders the resilience enhancement objective of RSF programme of increasing public, and private investments, and regulation for meeting objectives that are necessary to rein in lower the pace of otherwise fast unfolding climate change crisis. Unlocking greater investments, better expenditure utilization in terms of reaching meaningful level of productive, and allocative efficiencies requires a non-neoliberal, non-austerity, counter-cyclical policy response. Here, non-provision of any enhanced special drawing rights (SDRs) allocation by IMF in the wake of deep aggregate supply shock due to the Middle East (ME) crisis add to country’s difficulties in adopting counter-cyclical policies.

More than that, it is strange to say the least that IMF Country Report comes while the ME conflict ushered in an unprecedented oil supply shock, while the price rise in March for Crude Brent was around thrice the price rise in a single month, in May 2008, yet the Report apart from commenting on the damage being done, or likely to happen to country’s economy, under a number of scenarios depicting increasing intensity of negative economic consequences, is business as usual kind of report, lacking any creative policy response like, for instance, calling for putting in place a meaningful wealth tax, and a tax on otherwise very high windfall tax on profits of energy companies in the wake of immense increase in oil prices due to the ME conflict; not to mention indicating releasing enhanced level of SDRs allocation that should have come in support of balance of payments, especially for significant net oil importing countries like Pakistan.

It needs to be pointed out here that while IMF has dedicated a whole ‘Box 2. Potential for further revenue mobilization’ there is no mention of these two taxes (indicated above) even though there has been a lot of discussion with regard to applying these taxes among policy circles, especially with regard to tax on windfall profits being reportedly actively discussed at the European Union (EU).

Hence, in any scenario – from moderate to high intensity – growth, inflation, and debt burden is like to face negative consequences, and the difference is only in degrees, but in no case is significant. What this requires is a counter-cyclical impetus to push the country out of highly sub-optimal growth equilibrium, that is, the country is moving in between of around 2 to 4 percent over roughly the medium-term.

This has happened primarily because firstly the stabilization phase went for a disproportionate, and lopsided aggregate demand squeeze policies – in terms of deep, and continued monetary-, and fiscal austerity policies – response, which needed much reined-in polices instead to incentivize public and private investments to support domestic production and exports in an overall effort to enhance aggregate supply and, in turn, to reach lower prices of domestic production, and imported goods.

Greater supply, and a possible adoption of ‘dual-track’ pricing mechanism – on the lines adopted successfully by China over the decades – along with envisaging a greater role of the public sector to support markets, in terms of subsidies and taxes, and better regulation to protect against possible price gouging practices, and organizations in better price discovery, not to mention higher exports leading to possible appreciation of domestic currency, and lower imported inflation, would have provided a much more balanced and effective way to reduce and keep inflation stable, and predictable, while also not unnecessarily making investment costly, and stability in fact considerably boosting growth beyond the shot-term; and the sacrifice even in the short-term was likely much less than appropriated by lopsided austerity policies being pursued.

In addition, other creative policies could have been to rein in the shock therapy agenda of the EFF programme, in terms of for instance, insistence towards rolling back the government’s footprint in economy when, on the other hand, learning from China’s success in much more creative approach in the shape of adopting ‘dual-track’ pricing mechanism to better deal with stability, growth, and resilience objectives.

Moreover, in terms of showing greater cognizance of providing support to the economy and supporting greater investment, the nature of conditionalities should have been re-categorized to provide greater space for government in dampening the emphasis on austerity, and pro-cyclical policy.

Here, two steps needed to be taken: firstly, shifting conditionality with regard to floor of social spending, or ‘Cumulative floor on general government budgetary health and education spending’ from currently non-binding, ‘indicative targets’ (ITs) to binding, ‘quantitative performance criteria’ (QPCs), and, secondly, taking the primary surplus target – more precisely ‘Ceiling on the general government primary budget deficit’ – from (binding) QPC, to (non-binding) ITs.

It needs to be mentioned that while primary surplus (or fiscal austerity) was achieved at Rs. 4.1 trillion, where the Report pointed out ‘The end-December primary balance target was met with a comfortable margin, and a primary surplus of PRs 4.1 trillion(3.2 percent of GDP) was recorded inFY26H1…’, a relatively small amount of federal PSDP at Rs. 873 billion – or roughly Rs. 1 trillion – was budgeted for FY2025-26 (with provincial PSDP at Rs. 2.1 trillion); not to mention high needs of subsidy provision have not been entertained, especially given a significant rise in poverty during the programme due to likely significant contribution from overall austerity, and pro-cyclical policy stance adopted.

Hence, the Report is quite oblivious of unprecedented oil supply shock and price rise of oil in terms of better encompassing the extent of negative impact on macroeconomy, growth, welfare, and resilience, and the immense response needs generated in the wake of the ME conflict.

Unfortunately, the Report, both in terms of IMF’s response, and more shockingly with regard to lack of emphasis on significant negative impact of the ME conflict by authorities when people and business have come under severe economic stress due to oil price shock, places only mild attention to the negative outcomes of the conflict.

In this regard, the report lacks appropriately linking the extent of negative impact of the conflict with possible lot more adverse scenario predictions in terms of identifying policies to prepare for that eventuality, and which is shifting towards counter-cyclical policy, and hastening revisiting the neoliberal, austerity, and pro-cyclical basis of IMF programme along with addressing apparent contradictory approach between EFF, and RSF programmes, in terms of underlying economic philosophy, which have led the country on high growth, and resilience sacrifice for very shallow, and short-term macroeconomic stability basis.

An October 2025 World Bank published ‘Poverty & equity brief’ on Pakistan pointed out: ‘The poverty rate, measured at the new LMIC [low- and middle-income country] international poverty line threshold, is estimated to have decreased to 45.0 percent in FY25 ($4.20/day 2021 PPP) from 47.1 percent in the previous year.’ One wonders, why then in the IMF Country Report, this poverty rate is not taken, which represents a much more recent situation of poverty?

Instead, the Report takes FY19 number for poverty, which according to ‘Poverty rate at national poverty line(s)’ is at 21.9 percent, or approximately 22 percent. Hence, it is a little more than half of what World Bank’s poverty number is for FY25, and which is depicting poverty before substantial recession-causing shocks in the shape of Covid-19 pandemic, the Ukraine War, along with years of practice of monetary- and fiscal austerity policies over around the last medium-term.

(To be continued)

Copyright Business Recorder, 2026