IF we thought Pakistan had already met the IMF demands for the resumption of its $6bn funding by implementing ‘prior actions’ involving absolute autonomy for the State Bank, an increase in electricity prices as well as the development levy on petroleum products, and withdrawal of tax exemptions of nearly Rs350bn, we were hugely mistaken. More conditions directly affecting the low- to middle-income segments of the population have yet to be implemented.
The details of the agreement with the IMF disclose that the government is still required to slap additional taxes of Rs430bn through the next budget in June. Overall, the FBR has been given a tax target of Rs7.25tr for the next fiscal, up by Rs1.15tr from the revised target of Rs6.10tr for the ongoing year. Almost two-thirds of the additional tax revenues are expected to come from 4pc growth and 8pc inflation.
The rest has to be raised through new measures, including a reduction in personal income slabs from the existing 12 to six and enhanced rates. This is in spite of the finance minister’s repeated claims that he had turned down the IMF demand to jack up personal income tax rates since that would further distress the salaried class. That is not all. Electricity tariffs will also go up as the government desperately wants disbursement of the remaining loan amount of $3bn from the IMF before the end of the programme in September to pursue its growth agenda before the 2023 elections.
While Pakistan’s re-entry into the IMF programme was crucial for shoring up its foreign exchange reserves, the Fund’s harsh conditions will decelerate growth, fuel inflation, increase unemployment and erode purchasing power of the struggling low- to middle-income households. But it is too simplistic to blame the Fund for our travails, even if it seems to have gone overboard with its demands.
Read: Why is the IMF so unpopular?
Pakistan, as is underscored by the IMF in its review, with a long history of “stop-and-go economic policies and weak implementation of structural reforms”, should blame itself for its troubles. Successive governments (including the present one) have knocked at the IMF’s doors 23 times to seek help in tackling the repeated crises. But they have delayed the necessary governance and fiscal reforms and abandoned the programme midway to again spend their way to re-election once the external sector stabilised. It isn’t surprising that this time around the Fund has put its foot down, forcing Islamabad to execute some of its conditions before approving the programme’s resumption.
The PTI government believes it can ditch actions agreed with the IMF if it is able to convince China to help. But it must understand that even bilateral assistance largely depends on the IMF’s approval of Pakistan’s actions to restructure its economy. Further delay in the implementation of reforms will create more complications, and constrain economic recovery and investment at the expense of the people.
Published in Dawn, February 8th, 2022
