Pakistan, IMF and politics behind the numbers

Pakistan’s relationship with the International Monetary Fund (IMF) is decades old. Pakistan joined the IMF in 1950 and entered its first Stand-By Arrangement in 1958. Since then, the country has entered into 25 IMF arrangements, moving repeatedly between periods of stabilisation, reform and renewed balance-of-payments difficulties. The latest cycle includes the 2013 Extended Fund Facility, the unfinished 2019 EFF, the 2023 Stand-By Arrangement and the current 2024 Extended Fund Facility, supplemented by the Resilience and Sustainability Facility.

This history raises a question that is more complicated than whether Pakistan “needs” the IMF. Clearly, Pakistan has repeatedly created the conditions that have brought it back to the Fund: weak revenue mobilisation, persistent fiscal deficits, energy-sector inefficiencies, external imbalances, low savings and investment, and periodic policy reversals. The IMF has often provided financial breather to Pakistan’s economy.

But there is another question that deserves renewed attention: is IMF decision-making entirely technocratic, insulated from political-economy considerations and the influence of powerful shareholders? This is not merely a question raised by critics of the Fund. The IMF’s own Independent Evaluation Office has examined it.

In its evaluation of prolonged use of IMF resources, the Independent Evaluation Office (IEO) noted that “political” pressure from influential shareholders could affect IMF decisions. Pakistan was described as a particularly clear case in which many stakeholders perceived IMF decision-making as politically driven. In a survey of IMF mission chiefs and heads of departments, 48% reported experiencing strong political pressure “occasionally” or “sometimes”, while 7% said their technical judgment had been overridden by political pressure “frequently” or “always”.

The IEO did not conclude that the IMF is simply a political institution. Indeed, it made an important distinction: political considerations cannot realistically be removed altogether from an institution whose decisions ultimately involve shareholder governments. The problem arises when political considerations overwhelm technical considerations, potentially undermining the principle of uniformity of treatment among member countries.

That old evaluation has acquired new relevance in 2026. On September 10, the IEO posted a draft issues paper for a new evaluation entitled “Political Economy in IMF-Supported Programmes”. The evaluation will examine how political-economy considerations enter IMF-supported programmes and their implications for programme design and implementation. The timing is significant because it comes when IMF programmes increasingly reach beyond traditional balance-of-payments stabilisation into taxation, energy pricing, state-owned enterprises, investment, competition and climate policy.

Pakistan’s current programme illustrates this expansion particularly well. The 37-month EFF approved in September 2024, worth about $7 billion, is accompanied by the RSF and covers not only fiscal and monetary stabilisation but also energy-sector viability, structural reforms, social protection and climate-related reforms. The Fund is therefore no longer simply helping Pakistan bridge a temporary foreign-exchange shortage. Its programmes increasingly influence the framework within which major economic policies are designed. This makes the distinction between an IMF requirement and a government policy choice increasingly important. The petroleum levy provides a particularly revealing contemporary example.

Pakistan has recently faced an extraordinary situation due to increase in international oil prices. In March, after an initial 20% increase in domestic fuel prices, the government delayed further increases by providing temporary support to oil marketing companies. According to the IMF’s own staff report, the fiscal space of Rs152 billion was created through savings: Rs27 billion from reduced official-vehicle fuel allowances and cuts in non-salary expenditure, Rs100 billion from the Public Sector Development Programme (PSDP) and Rs25 billion from State-Owned Enterprise (SOE) grants. The Fund subsequently recorded that the temporary support was unwound and required full alignment of domestic fuel prices with international prices followed by regular adjustments.

This episode is important because it demonstrates that, under exceptional circumstances, Pakistan and the IMF were able to create fiscal space through expenditure savings and use that space to delay the immediate transmission of an international oil-price shock.

But there is a fundamental difference between that temporary arrangement and the Jamaat-e-Islami proposal now being debated. The issue is not whether Pakistan should permanently subsidise petroleum prices. Indeed, the IMF itself argues that subsidies designed to prevent domestic fuel-price adjustment are distortionary and fiscally unsustainable. Its programme requires domestic fuel prices to be aligned with international prices.

The alternative question is therefore this: if Pakistan allows the international price to pass through completely, but abolishes the Petroleum Development Levy, could the lost fiscal revenue be replaced through credible expenditure savings and other revenue measures? This would not be a subsidy. If international oil prices rise, the consumer would still pay the higher price. If they fall, the price would fall. The international price signal would remain intact. What would disappear would be the additional domestic fiscal charge represented by the petroleum levy.

The arithmetic explains why this deserves serious examination. The petroleum levy target has been around Rs1.5 trillion a year. A hypothetical recurring saving of Rs120 billion a month would amount to Rs1.44 trillion annually; Rs130 billion a month would amount to Rs1.56 trillion; and Rs140 billion a month would amount to Rs1.68 trillion. In other words, if savings of that magnitude could be identified and sustained, they could approximately replace, or even exceed, the annual revenue currently expected from the levy.

But this calculation should not be misunderstood. The Rs129–130 billion associated with the recent temporary fuel-price support was not a recurring monthly saving. However, it also shows that to reduce the severe economic burden on the public and to ensure avoiding economic meltdown, the government can find fiscal space to abolish petroleum levy.

Also, it will not be correct to consider that the Rs152 billion saving package constitutes a permanent annual fiscal resource. The relevant question is whether Pakistan can identify recurring savings on a comparable scale—in areas identified by IMF for 152 billion saving or the areas identified during multiple negotiation sessions of technical teams of the government and Jamaat-e-Islami in September 2026. That distinction is central to the debate.

The current IMF programme does not merely say that Pakistan must collect money through a specific tax instrument. Its fiscal framework contains overall revenue and primary-balance objectives, alongside specific programme conditions. At the same time, the latest IMF documentation explicitly identifies the petroleum levy as an important source of revenue and incorporates it into the fiscal projections. Therefore, replacing the levy would require credible replacement of the resulting fiscal loss. But that is different from saying that a specific petroleum-levy rate is necessarily the only instrument through which Pakistan can meet its fiscal obligations.

Indeed, the Finance Ministry itself recently rejected the description of the petroleum levy as the “central point” of the IMF programme, calling such reports misleading. That clarification makes the issue even more worthy of public examination: if the levy is not itself the central IMF condition, what exactly does the programme require, and what room does Pakistan retain to choose alternative means of achieving the agreed fiscal objectives?

This is where the current Jamaat-e-Islami campaign becomes relevant to a wider economic discussion. JI Ameer Hafiz Naeem ur Rehman has challenged the petroleum-levy regime before the Federal Constitutional Court, seeking scrutiny of its constitutional, fiscal and economic implications. The petition remains pending. At the same time, the issue has moved from the courtroom to the streets. JI has conducted sit-ins in cities across the country, held several rounds of negotiations with the government, presented proposals for abolishing the levy, launched a train march and announced a long march towards Islamabad. The march was subsequently postponed at the Prime Minister’s request, while the protest campaign continues, and the party kept the option of further mobilisation open.

The importance of this episode is not whether one agrees with JI’s political position. It is that the controversy has forced into the public domain a question that should have been examined more systematically: which part of the present petroleum price is determined by international market conditions, which part reflects transportation, marketing and other costs, which part represents taxes and levies, and which of these components are in fact constrained by the IMF programme?

That distinction is essential for an informed debate. It is also relevant to the broader question of Pakistan’s relationship with the Fund. The failure of earlier programmes cannot simply be attributed to IMF conditionality. The IMF’s own assessment of the 2019–23 EFF found that Pakistan initially restored stability but subsequently experienced policy reversals, delayed energy tariff adjustments, exchange-rate pressures, weak revenue mobilisation and rising debt and energy-sector liabilities. The programme eventually expired without achieving its intended objectives.

This pattern illustrates the other side of the relationship. Pakistan cannot ask the IMF to solve problems that successive governments have been unwilling or unable to resolve domestically. Nor can every unpopular reform be dismissed as something imposed by Washington. There are genuine structural weaknesses in Pakistan’s economy, and IMF conditionality often reflects problems that existed long before the Fund entered the broader financial framework.

But recognising Pakistan’s responsibility does not eliminate the need for transparency on the IMF side. If political-economy considerations inevitably enter IMF-supported programmes, as the Fund’s own IEO has acknowledged, then the institutional question is how those considerations are separated from technical judgments and how equal treatment among member countries is protected. If the IMF requires a fiscal outcome, Pakistan should know what alternative policy instruments are available to achieve it. If a specific instrument is genuinely a binding programme requirement, that should be clearly identified. If it is an assumption, recommendation or preferred policy instrument, it should be described as such.

This is particularly important when the consequences fall directly on ordinary citizens. Petroleum taxation is not an abstract fiscal statistic. It affects transport costs, food prices, agricultural inputs, industrial production and household budgets. The same is true of electricity tariffs, gas prices, interest rates and taxation. Once IMF-supported programmes become deeply involved in these areas, the quality and transparency of the policy choices become as important as the financial assistance itself.

Pakistan therefore needs neither an anti-IMF posture nor an unquestioning acceptance of every policy prescription associated with an IMF programme. What it needs is a more mature relationship with the Fund. Pakistan should accept the need for fiscal discipline, credible revenue mobilisation, energy-sector reform and macroeconomic stability. At the same time, it should insist on a clear distinction between binding programme commitments and the policy instruments selected by the government to meet them. Where an alternative can achieve the same fiscal objective at lower economic and social cost, it should be placed transparently on the table and discussed with the Fund.

The petroleum levy debate offers an opportunity to test precisely this principle. If the government believes that abolishing the levy would create an unmanageable fiscal gap, it should publish the numbers and identify why alternative savings cannot replace it. If credible recurring savings and additional revenues can replace the levy, then the question becomes one of policy choice rather than IMF compulsion.

Ultimately, the most important lesson from seven decades of Pakistan’s IMF relationship may be that responsibility runs in both directions. Pakistan must own its economic reforms instead of treating the IMF as a substitute for domestic policy making. But the IMF, too, must ensure that its programmes are transparent, technically grounded and consistently applied.

The article does not necessarily reflect the opinion of Business Recorder or its owners.