An IMF delegation is in Islamabad for the second review of the economic situation for the bailout package given to Pakistan last year. The talks are expected to last for around two weeks and on completion, the IMF could release a new tranche of $450 million to Pakistan.
Pakistan has so far received $1.44 billion from the IMF in two tranches. Last year, the government was compelled to swallow the bitter pill and approach the financial institution for a bailout package of $6 billion. The meetings will discuss technical and policy decisions along with the exchange of data relating to revenue collection as well as energy sector reforms. The IMF will also review performance of various ministers and government institutions particularly FBR, SBP, and the energy and privatization commission among others.
Pakistan will certainly come under pressure to convince the IMF that it can reduce the rising fiscal deficit as it struggles with a balance of payment crisis. The key inflation rate has also reached a new high of 14.56 percent in January- the highest in last twelve years- more than the projection by the IMF and SBP. The inflation is being attributed to the sudden rise in prices of food items particularly wheat flour, sugar, pulses, and edible oil. A massive hike in gas prices and fuels is also on the cards due to energy tariff adjustments. With double-digit inflation, the government has no option but to introduce a mini-budget and raise prices even though it would be politically risky.
The FBR has been under immense pressure to raise tax revenue and Chairman Shabbar Zaidi, who was brought with immense optimism, has been pushed to take an indefinite leave. Pakistan has reportedly requested IMF to reduce the annual tax target for the second time as the Rs5 trillion tax target was deemed too unrealistic by the tax authority. The IMF has asked for additional revenue measures which suggest that a mini-budget is inevitable.
The mini-budget will impose even more burden on the common man who is the worst affected from the economic crisis. The government has to fulfill its obligations to the IMF but the promises made to the people that it will provide relief should not be negated. There has been a lot of uncertainty among investors and the public over these ongoing talks as it would bring a new wave of rising prices. The government should address these fears and ensure that the common man is not be burdened with more than they can endure.
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