Restart of Pakistan’s IMF loan agreement collapses with change in government, as soaring costs of IFC-supported LNG add to fiscal pain

21 July 2022

Pakistan has reopened negotiations with the IMF to resume a $1 billion disbursement of its stalled $6 billion Extended Financing Facility, after prime minister Imran Khan was ousted in April following a no-confidence vote, scuppering a deal to restart the loan programme (see Observer Spring 2022).

The previous restart of Pakistan’s IMF loan had drawn the ire of Pakistani environmental civil society groups, as a mini-budget linked to the programme had removed tax breaks for imported renewable energy components and electric vehicles, in a blow to the country’s agreed national climate targets (see Observer Spring 2022).

According to a 3 June article in the Financial Times, Pakistan’s government is now increasing the cost of energy to its citizens – despite the global food and fuel crisis (see Observer Summer 2022) – in an effort to meet the IMF’s conditions. The FT noted, “The government…has raised fuel prices by more than a third in two separate moves this month after requests by the IMF to remove subsidies.”

Among the issues exacerbating Pakistan’s fiscal crisis is its growing reliance on importing liquefied natural gas (LNG). A June report from the US-based International Institute of Energy Economics and Financial Analysis (IEEFA) found that, “Increasing reliance on LNG has exacerbated energy insecurity and financial struggles for the government, household and business, and economic sectors,” warning that this has exposed the country to commodity price shocks.

The International Finance Corporation (IFC), the World Bank’s private investment arm, played a pivotal role in investing in Pakistan’s first LNG import terminal in 2015, providing $35 million in loan and equity support to the project, according to research published in April by Netherlands-based civil society organisation Recourse.