Pakistan’s economic woes appear to have no end. In a fresh blow to the already starving population, the Prime Minister of Pakistan, Shehbaz Sharif-led ruling coalition has decided to significantly increase tax rates, for a desperately needed financial bailout package from the International Monetary Fund (IMF). The stringent terms stated by IMF have compelled the government to take this action, adding to the already significant burden on the Pakistani people.
Despite ongoing discussions with the international financial organization, Pakistan has not yet been able to persuade IMF to grant it a loan. The bailout package meeting on Thursday drew to a close without coming to a decision.
IMF Pakistan Mission Chief Nathan Porter released a statement after the meeting highlighting IMF’s concerns. “Key priorities include strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies, while scaling up social protection to help the most vulnerable and those affected by the floods; allowing the exchange rate to be market determined to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector. Virtual discussions will continue in the coming days.”
Muhammad Ishaq Dar, the finance minister of Pakistan, on the other side, stated that the meeting was ‘nothing unusual’. He said, “This is the standard procedure that is followed in every program.”
Ishaq Dar insisted that the discussions with the IMF came to a successful conclusion. Dar also announced that additional taxes totaling $170 billion would be levied by the government. The goal of the additional taxes is to resuscitate the bailout package.
According to Dar, who was speaking to the media, the Pakistani government has received the IMF’s draft Memorandum of Economic and Financial Policies (MEFP). He emphasized that the previous Pakistani prime minister Imran Khan had signed off on the tariffs that the government would impose.
“This is an old agreement that was first suspended and then delayed,” Dar claimed.
The discussions with the IMF mission reportedly lasted ten days, as per the Pakistan finance minister. During this, the oil and gas industries, and the financial and monetary components have been discussed.
He revealed that ministers, representatives from various departments, and the State Bank of Pakistan were all present for the discussions. Dar stated that reforms in the energy industry would be put into effect.
Ishaq Dar contended that Pakistan would benefit from the reforms suggested by the IMF. These measures are necessary for Pakistan, he stressed. Dar added that PM Shehbaz Sharif has promised to implement these changes speedily to the IMF. On Friday morning, the document was delivered to the government.
The government subsequently gave in to nearly all of the IMF’s demands in exchange for securing the MEFP and the staff-level agreement. There is general agreement to impose new taxes, raise loan rates and electricity costs dramatically, and leave the US dollar to market forces.
Each agreed-upon step would be an additional burden for the majority of Pakistanis because of the enormity of the financial downturn. Pakistan and the IMF will now hold a second virtual meeting on Monday.
Reportedly, Pakistan will take additional revenue measures equal to 1.4% of the size of its GDP, or about Rs 700 billion to attain a tax collection target of around Rs 6 trillion in the next fiscal year under the International Monetary Fund accord.