Reviving IMF programme

The IMF programme is back on track. The prime minister had to take tough economic decisions in recent weeks amid the political uncertainty before the global financial institution could revive the $6 billion bailout plan imperative for budgetary support.

Just a day after a presidential ordinance was passed on revoking corporate tax exemptions, the IMF executive body approved the third tranche of $500 million. Pakistan has to swallow a bitter pill imposing Rs140 billion taxes and agreeing to provide unparalleled autonomy for the State Bank. The IMF has already disbursed $1.45 billion in two tranches bring the total to $2 billion. But it will be challenging to keep the programme on track due to heavy taxes of over Rs700bn and reduction in expenditures in the next programme.

Pakistan’s economy had gradually began to recover from the aftermath of the coronavirus crisis but has already been struck by the third wave of the pandemic which once again threatens economic growth. The central bank has revised the growth forecast to 3 percent for this fiscal year; the IMF has forecast just 1.5 percent. The government has relied heavily on external borrowing and will keep the option open despite the revival of the country.

The IMF was expected to release $2.2 billion but the government resisted issuing a mini-budget in April amid possible political uncertainty. Eventually the government conceded and decided to withdraw tax exemption and hike up electricity prices by 16 percent and a further one-third in the next six months. This would collect a whopping Rs884 billion in taxes but will overburden the masses who will also face the brunt of price hike as the holy month of Ramazan nears.

Another controversy has arisen over the proposed bill to grant unprecedented autonomy for the State Bank on Pakistan. The opposition has decried the move as tantamount to making the central bank an IMF branch. The government would face stiff resentment from the opposition if it attempts to pass the act in parliament.

It is certain that the government would certainly impose new taxes in the next budget. Cash- strapped Pakistan has been in dire need of funds and is attempting to raise them through bonds issuance. Although exports and remittances have risen and the current account deficit has shrunk, it would require more cash injection to prop up the economy on track for development.