Hopes are rising for Pakistan to secure an IMF program, providing a pivotal opportunity for experts to stabilize the economy. Under this new agreement, Pakistan is set to receive $7 billion over the next 37 months. The government has established a historic revenue target of 12,980 billion rupees for the current fiscal year, marking a 40% increase compared to last year. Presently, the government faces an annual deficit of 5 trillion rupees in the energy sector, which includes electricity and gas.
In Karachi, anticipation is building for the IMF Executive Board’s final approval of the new economic program valued at $7 billion for Pakistan. IMF spokesperson Julie Kozik confirmed that Pakistan has secured necessary financing assurances from its development partners, a critical condition for final approval. The IMF’s Executive Board will review the agenda related to Pakistan on September 25.
While the government expresses satisfaction with the fund announcement, many analysts believe that receiving the 24th IMF program presents another chance for Pakistan to tackle its long-standing economic challenges through reforms. However, some caution that achieving meaningful change may not be straightforward.
“Can Pakistan Seize This Opportunity?”
Numerous analysts consulted by Voice of America suggest that finalizing the agreement will allow Pakistan to introduce reforms across all economic sectors. This includes enhancing tax collection, practicing expenditure austerity, and addressing losses in energy, pensions, and state-owned enterprises.
Economist Suleman Abdullah emphasizes the importance of considering the current decline in global oil prices, as rising prices would inflate Pakistan’s import bill. He notes that oil prices have consistently fallen over the past two months, creating a rare opportunity for the government to resolve persistent economic issues.
Over the next 37 months, Pakistan will remain under the IMF program, significantly reducing the risk of default. Additionally, decreasing oil prices will assist in controlling the trade deficit, facilitating improvements in foreign exchange reserves, consolidation, and easing loan repayments.
However, the government’s responsibilities extend beyond securing the loan. The real challenge lies in implementing reforms in this favorable environment. To address its deficit, the government must enhance revenue generation, adhering to the revenue target set according to IMF guidelines.
“Revenue Growth and Expenditure Cuts Required”
The Government of Pakistan has set an ambitious revenue target of 12,980 billion rupees for the current budget, equivalent to over $46 billion. Many experts consider this tax target unrealistic. Data from the Federal Board of Revenue (FBR) reveals that it fell 98 billion rupees short of its tax collection goal in the first two months of the fiscal year.
The FBR spokesperson indicated that a decline in imports has resulted in lower collections of customs duties and other import-related taxes. Nonetheless, officials are optimistic about meeting tax targets in the first quarter of the fiscal year due to anticipated increases in economic activity and imports, spurred by lower policy rates and recent government measures.
Suleman Abdullah warns that failure to meet the tax target may lead the government to introduce mini-budgets, potentially complicating life for ordinary citizens, about 40% of whom live below the poverty line. He pointed out that incomes have not significantly increased over the past few years, while essential living costs continue to rise.
Additionally, the government faces challenges in managing its expanding current expenditures, which have attracted criticism from various sectors. The government claims it is implementing multiple measures to reduce the size and expenses of the federal administration, including plans to close or privatize certain departments and agencies, such as the Pakistan Works Department and Utility Stores Corporation. Merging several ministries is also under consideration.
“Can the Government Implement Necessary Reforms?”
Some experts doubt the government’s ability to introduce comprehensive reforms to tackle economic challenges. Such reforms not only require increasing revenues but also addressing losses in the energy sector. The government claims it is developing a comprehensive strategy for this purpose, with implementation expected soon.
Currently, the government is grappling with an annual loss of 5 trillion rupees in the energy sector, while losses from state-owned enterprises are estimated to be around 1 trillion rupees.
Dr. Abdul Azim, an economic expert, highlights the challenges faced by the current coalition government, which lacks the mandate to implement reforms that could jeopardize its voter base. Additionally, the government does not have sufficient support for necessary constitutional amendments.
Dr. Abdul Azim notes that political instability in Pakistan makes it increasingly challenging to pursue a long-term reform agenda.
Federal Finance Minister Mohammad Aurangzeb has stated that negotiations with the IMF have concluded smoothly. He affirmed that arrangements would be finalized this month and insisted that the national economy is transitioning toward stability and growth. He claimed that relief measures for the average citizen have already begun, thanking Prime Minister Mohammad Shehbaz Sharif’s team, the IMF negotiating team, and other key stakeholders for their roles in securing the agreement.
Economic experts believe that the IMF program could lead to increases in electricity and gas prices, and the government might impose additional taxes to cover its deficit. However, if the program is faithfully implemented, it could yield positive outcomes, contributing to economic stability in Pakistan in the long run.