Inflation can destabilize Pakistan: IMF

Food and Fuel prices in Pakistan

The International Monetary Fund (IMF) has warned that rising food and fuel prices in Pakistan could lead to instability.

In its latest review report on Pakistan, the IMF has said that 'due to the increase in food and fuel prices, there may be public protests and the country may go towards instability.'It should be noted that the central bank of Pakistan received an installment of one billion 16 million dollars from the IMF on Wednesday.

The tranche was released to Pakistan after the completion of the seventh and eighth reviews under the Extended Fund Facility (EFF) by the Board of the IMF. In June 2022, the Pakistani authorities and the IMF staff mission reached an agreement on the budget for the current fiscal year, in which the authorities assured a tax of Rs 436 billion and a gradual lifting of the petroleum levy to Rs 50 per litre.

According to a recent report, inflation in Pakistan is at the highest level of 27.3% compared to the last 47 years. Food prices are expected to rise further due to the worst floods. The report also expressed concern that due to the complex internal conditions and external environment in Pakistan, the IMF program may not be fully implemented.

 Complex internal conditions and external environment 

According to the IMF, the increasing prices of food and fuel due to the war in Ukraine and financial difficulties at the global level will continue to burden Pakistan's economy, and pressure on the exchange rate and external stability will also be affected.

"There is a high risk of a policy shift from Pakistan, as seen in FY2022, fueled by weak capacity, powerful vested interests, an uncertain history of holding elections, and a complex political environment." .'According to the IMF, "In addition to the risk of protests, pressures at the socio-political level are also likely to remain high, particularly as weak political coalitions and a small majority in parliament may affect the implementation of policy and reforms."

"All of this could affect policy decisions and undermine the (IMF) program's monetary adjustment strategy."

According to the report, "delays in structural reforms may hinder the stabilization of the financial sector, and fiscal policy may not be effective, increasing the risk of climate change, which may lead to more natural disasters."

Referring to the previous government of Pakistan Tehreek-e-Insaaf, the IMF said that while breaking the promise, PTI gave a four-month relief package to the people in February. According to the report, due to these measures, the fiscal deficit increased in the third and fourth quarters of the financial year 2022 and the financial target could not be met by the end of June.