Pakistan to cut down development funds on IMF demand

ISLAMABAD: The federal government has decided to cut down country’s development funds on demand of the International Monetary Fund (IMF) to ensure successful completion of the review, as well as the overall programme, ARY News reported on Wednesday, citing sources.

Citing a demand by the global lender, sources told ARY News that the government has decided to end 137 development projects worth Rs116 billion included in PSDP (Public Sector Development Funds).

Sources claimed that the cut in the development projects was decided to meet country’s financial deficits. The Centre was of the view that the provinces could fund the 137 development projects, if they want.

The Planning Commission documents have revealed that the work on 137 development projects, which are part of PSDP, has not been started yet. The size of the development budget will be reduced to 834 billion after cutdown of Rs116 development funds, sources added.

A day earlier, the State Bank of Pakistan kept its key rate unchanged at a record 22% as “it waits for the effects of previous hikes to filter through the economy and further tame retail inflation”.

The rate was raised to 22% in an off-cycle meeting in June as a last-gasp attempt to secure a $3 billion bailout from the International Monetary Fund (IMF) as part of a reforms programme aimed at bringing stability to the troubled $350 billion economy.

Pakistan’s economy has been beset by high price pressures, with monthly consumer price index-based inflation remaining above 20% since June 2022, and hitting a record high of 38% in May 2023.

The bank and the IMF both say they expect inflation to ease in the current financial year ending in June 2024, but inflation remained at 29.2% in November after energy prices were hiked to meet reform targets.

Ahead of the IMF bailout in July, Pakistan had to commit to a slew of measures demanded by the IMF, including revising its budget, demonstrating promises of foreign funding, and increasing electricity and natural gas prices.

The IMF has released $1.2 billion in funds. Under a staff level agreement reached last month the fund is set to release another $700 million once approved by its board on Jan. 11.

The country’s foreign reserves have improved, growing to around $7 billion – enough to cover 1.4 months’ worth of imports and up from $4.4 billion in July.