KARACHI: Activists belonging to different civil society groups said on Friday the pre-conditions imposed by the International Monetary Fund (IMF) for the release of a $1.1 billion loan tranche are pushing the country towards a climate catastrophe.

Speaking at a webinar organised by the Alliance for Climate Justice and Clean Energy (ACJCE), Alternative Collective Law researcher Hashim Rashid said the falling currency, hyperinflation, rising taxes and spiralling energy prices and production costs, especially in the renewables sector, are tied directly to harmful prior actions under the IMF programme.

“Collectively, they’ve created an economic environment that threatens all planning put in place to meet national climate goals and international climate obligations,” he said.

Mr Rashid, who has recently sent a letter to the IMF on behalf of ACJCE, said the Washington-based lender’s failure to approve the loan while insisting that its prior actions be met at any cost has stymied many nascent industries that could increase the use of renewable sources of energy. The IMF-imposed fiscal restrictions have jeopardised the import and local manufacturing of electric and hybrid vehicles, he added.

“The flat refusal to allow fuel subsidies for lower-middle class and the poor population shows that the IMF is not interested in mitigating the impact of economic and environmental disasters that Pakistanis have faced in the last year or so,” he said, adding that the lender should’ve linked the phasing out of subsidies on fossil fuels with the promotion of renewable energy.

Responding to a question about blanket subsidies that, according to one estimate, 80 per cent of all consumer connections received until recently, Mr Rashid said the government should focus on removing the subsidies enjoyed by power producers and distributors instead. Companies in the power sector enjoy a lot more financial support from the government in the name of capacity payments, dollar indexation and the like.

He said the IMF-backed reforms are driven by an obsession with short-term fiscal expediency measures, such as energy price hikes for raising revenue and the phasing out of power and petrol subsidies for reducing public expenditure.

The flawed approach to reforms has impeded Pakistan’s renewables markets. Last year, the government imposed a 20 per cent tax on solar panels, wind turbines and related technologies under the IMF programme, reversing the encouraging growth trend in solar markets. Tax exemptions on solar were reinstated after considerable public resistance.

Similarly, a tightening fiscal space under the IMF loan conditions has forced the government to abandon its flagship 600-megawatt solar project while resorting to easier, more accessible investments in the shape of coal power, which has found new life in the 300MW Gwadar plant. “This slips back into further fossil fuel dependency… stems directly from the Fund’s failure to integrate Pakistan’s climate objectives and climate finance needs into the design of its loan programmes,” he said.

Published in Dawn, May 20th, 2023