Here it comes

IT seems the finance minister’s meeting with the US treasury secretary last week has yielded some understandings that are already beginning to play themselves out.

Consider the decisions made at the last Economic Coordination Committee (ECC) meeting. Subsidies totalling Rs255 billion were approved for ‘exporters’ and, it seems, a conscious decision has been made to pull government funds away from schemes to promote remittances and channel them towards exports instead. So far, so good.

The problem comes when you realise that these are subsidies and the country is on an IMF programme which specifically forbids subsidies. For example, only this past May, in the last review of the programme, the government committed that it “will refrain from providing any new fiscal incentives, such as tax breaks or subsidies (including on bank credit)”. Those last four words — “including on bank credit” — were inserted between the second and third reviews, and this is language that specifically points to schemes exactly of the sort they are trying to introduce, with a view to prohibiting them.

Another commitment specifically listed in the review documents says the government will “[r]efrain from offering any new fiscal incentive or guaranteed returns (in any currency) to firms or any investment project”. Note the term “any new fiscal incentive” as well as “guaranteed returns”, because both these conditions are breached by the new Long-Term Export Growth Financing Facility. The other, the Exim Bank Export Finance Scheme (E-EFS), however, is a repackaged legacy scheme of the same name run by the State Bank and now being removed from its balance sheet under another IMF commitment. So it does not qualify as a “new fiscal incentive”. But it has other problems.

The confidence with which they are now moving ahead to roll out incentives suggests something has changed.

In the last review in May, the Fund tightened its restriction on the use of the E-EFS facility by placing a cap on it. In that review, the government committed that lending under this scheme will not exceed 15 per cent of private sector credit. This cap applies to all lending under Exim Bank facilities, to which the State Bank’s legacy subsidised lending schemes are being transferred.

So now we have another hoop to consider. The IMF ceiling applies to loans outstanding at any moment, not to lending over the year. Because these are six-month loans that revolve, the schemes can push well over Rs2 trillion through the system annually while remaining within the cap. The Rs58bn subsidy provision implies average balances of around Rs1.2tr in FY27 — comfortably within the limit, yet supporting roughly twice that in gross lending.

This is a lot of money and it is about to be pumped into the economy in the name of “promoting exports”. In quantitative terms, they may just be compliant with their commitments to the Fund, but in qualitative terms it is hard to see at least one of these facilities as anything other than a breach. No new fiscal incentives or guaranteed returns were permitted under the commitment as of May. At least one of these is definitely a new fiscal incentive with guaranteed returns.

Now how much do you want to bet that they will get their way and the IMF will find the right language with which to look the other way? In fact, it seems they have already laid the groundwork for this. When the programme started back in September 2024, the commitment given on subsidised credit was that the government would “refrain from providing companies fiscal incentives such as tax breaks or other subsidies (including for credit)”. Then in the first review in May 2025, this changed slightly to “refrain from providing any fiscal incentives”. And then in the next review in December, it changed to “refrain from providing any new fiscal incentives, such as tax breaks or subsidies (including on bank credit)”.

These are subtle tweaks, but in the formal and bureaucratic world of the IMF, they imply important changes taking place in the background. The language suggests a loosening taking place, landing eventually at “any new fiscal incentives” as the preferred terminology. And then the finance minister meets the US treasury secretary and, upon his return, chairs an ECC meeting that approves “new fiscal incentives” for firms in particular. Let’s see how the language evolves in the review due in a few months.

The confidence with which they are now moving ahead to roll out incentives suggests something has changed. The following language in the readout issued by the Treasury Department after the meeting with Pakistan’s finance minister is not­eworthy: “Secretary Bessent expressed support for Pakistan’s efforts to build greater econo­mic self-reliance and commended the governm­ent’s commitment to creating the conditions for a suc­cessful return to international capital markets.”

The support for economic self-reliance can be understood as support for measures to boost exports. And “creating the conditions for a successful return to international capital markets” remains to be clarified. A swap line in the order of $10bn, even if it is not drawn down, will provide exactly this support for a “successful return to international capital markets”, although it is far from clear whether that is what the words refer to.

The government is now decidedly swivelling towards growth. The external sector has substantial buffers, and on the same day as the ECC meeting, the SBP governor told analysts at a briefing that the forward liabilities of the SBP had dropped by around $4bn since June, according to a summary note of the briefing by Topline Securities. This is on top of a nearly $8bn decline, since April, in predetermined drains projected over the following 12 months. The governor assured his audience that the SBP’s buying of dollars will continue till December 2026. From that point on, substantial FX availability will open up in the economy as well.

Both the fiscal and the external buffers have been rebuilt. And the authorities are now moving to spend this money. Growth is usually what follows such moves.

The writer is a business and economy journalist.

[email protected]

X: @khurramhusain

Published in Dawn, July 30th, 2026