The government began talks with the International Monetary Fund (IMF) on Wednesday over the release of crucial funds, a process slowed by concerns about the pace of economic reforms in the country.
Pakistan has repeatedly sought international support for its economy, which has been hit by crippling national debt, galloping inflation and a plummeting rupee.
The talks are being held in the Qatari capital Doha, the Ministry of Finance said, and are expected to continue into next week.
Finance Minister Miftah Ismail, Minister of State Dr Aisha Ghous Pasha, Finance Secretary Hamed Yaqoob Shaikh, State Bank of Pakistan (SBP) Acting Governor Dr Murtaza Syed, Federal Board of Revenue (FBR) Chairman Asim Ahmad and other officials from the Finance Division are participating in the talks.
A major sticking point is likely to be over costly subsidies — notably for fuel and electricity — and the finance minister said he wants the two sides to “find a middle ground”.
“The government will try to convince the IMF that for political stability purposes it is important to keep at least some of the subsidies,” said economist Shahrukh Wani.
“The IMF will possibly, rightly, say that these are unsustainable and they should be rolled back to make the trade and budget deficit manageable,” he added.
A $6 billion IMF bailout package signed by former prime minister Imran Khan in 2019 has never been fully implemented because his government reneged on agreements to cut or end some subsidies and to improve revenue and tax collection.
Islamabad has so far received $3bn, with the programme due to end later this year.
Officials are seeking an extension to the programme through to June 2023, as well as the release of the next tranche of $1bn.
Prime Minister Shehbaz Sharif has vowed to jumpstart the moribund economy, but analysts say his fragile government has failed to take tough decisions.
In recent meetings with the new finance minister, the IMF has linked the continuation of its loan programme with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz has multiple times rejected summaries by the Oil and Gas Regulatory Authority and the finance ministry to increase fuel prices.
“It’s an administration that has refused to take hard political steps to bring eventual economic relief — but that’s exactly the sacrifice it must make by going to the IMF,” said Michael Kugelman, deputy South Asia director at the Wilson Centre in Washington.