The visiting delegation of the IMF has concluded its ten-day Pakistan visit to review the country’s economic performance over the $6 billion bailout package. The economic team held its nerve during the tough negotiations but it appears that the talks have been successful.
The IMF issued a statement after the talks concluded providing a sunny outlook of Pakistan’s economic situation. The global financial institution said that Pakistan has made considerable progress in the last few months in advancing reforms and continuing with sound economic policies. The visiting delegation held constructive talks with the economic team and express satisfaction that Pakistan has met all performance criteria and structural benchmarks.
This performance report will now be submitted to the IMF’s Executive Board which is expected to approve a new tranche of $450 million to Pakistan next month. The IMF is also pleased over the steadfast progress on program implementation during which development and social spending have been accelerated. The macroeconomic outlook also remains broadly as expected while the economic activity has stabilised and remains on the path to recovery.
According to reports emerging during the negotiations, the government has made it clear to the IMF said taxes will not be raised immediately and the shortfall will be completed from non-tax revenue. This implies that the expected mini-budget and a new tax regime have been delayed until June. Sales tax will also be retained at 17 percent while there will no increase in gas and electricity tariffs for now.
The economic team will be relieved over the initial report. The current account deficit has declined, helped by the exchange rate, while international reserves have continued to increase faster than anticipated. The fiscal performance has also remained strong and inflation should start to see a declining trend soon. The real challenge would start afterward as the government needs to generate non-tax revenue while tax official states there is no room for tax measures in a slowing economy.
The IMF was conveyed at the outset that the FBR would not be able to reach close to the revised tax collection of Rs5.2 trillion. The IMF expressed immense dissatisfaction and FBR chairman was placed on the sidelines and is expected to quit. Pakistan’s economic woes are far from over as it continues to meet the IMF’s harsh conditions to bring the fledgling economy back on track.
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