Islamabad, 3 July 2024, (GNP): The IMF is currently working towards finalizing a staff-level agreement with Pakistan for a bailout exceeding $6 billion this month, as confirmed by Minister of State for Finance, Revenue, and Power Ali Pervaiz Malik on Wednesday.
Pakistan’s Pakistan Muslim League-Nawaz (PML-N)-led coalition government has ambitiously set revenue targets in its annual budget to secure IMF approval for the loan, amidst increasing discontent domestically over newly implemented tax measures aimed at averting another economic crisis.
The negotiations highlight Pakistan’s efforts to stabilize its economy through international assistance, despite challenges posed by public dissatisfaction with fiscal policies. This initiative underscores the country’s commitment to addressing economic vulnerabilities with external support, amid ongoing efforts to manage fiscal reforms and ensure sustainable growth.
In the budget, the government has implemented several tax increases affecting the already strained salaried class, brought exporters under normal tax rules, raised the petroleum levy to Rs70, and introduced new taxes on the real estate sector, among other measures, all aimed at boosting tax collection.
“We aim to conclude this (IMF) process within the next three to four weeks,” Malik informed Reuters, emphasizing the goal of securing a staff-level agreement before the IMF board’s recess.
Regarding the size of the package, Malik suggested it would likely exceed $6 billion, although he emphasized that IMF approval remains the primary focus at this stage.
The IMF has not yet responded to requests for comment.
Earlier, Finance Minister Muhammad Aurangzeb expressed optimism about Pakistan’s prospects of securing a new IMF bailout, following President Asif Ali Zardari’s endorsement of the tax-heavy budget for the upcoming fiscal year starting July 1.
“The IMF program is crucial for macroeconomic stability. We are moving forward with it; it’s inevitable. I’m confident we’ll successfully conclude negotiations for an Extended Fund Facility, which will be larger and longer-term,” the minister said during a press conference in Islamabad.
In today’s statement, Malik highlighted that the purpose of presenting a tough and unpopular budget was to pave the way for an IMF program, noting that discussions with the lender indicated satisfaction with the revenue measures implemented.
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“There are no significant issues remaining to address, now that all major prior actions, including the budget, have been fulfilled,” Malik stated.
While the budget may gain approval from the IMF, analysts suggest it could provoke public dissatisfaction. “Clearly, these budget reforms impose burdens on the local economy, but the IMF program is primarily aimed at stabilization,” Malik commented.
Economist Sakib Sherani, who heads the private firm Macro Economic Insights, emphasized the urgency of reaching a swift agreement with the IMF to prevent pressure on Pakistan’s foreign exchange reserves and currency, especially given upcoming debt repayments and the impact of previous measures to control capital flows and imports.
“If negotiations drag on, the central bank might need to temporarily reintroduce controls on imports and capital,” he warned. “This could lead to a period of uncertainty, potentially impacting the stock market rally.”
