Mallika Dureja
Pakistan Economic Crisis :Cash-strapped Officials and analysts warned Monday that Pakistan will impose 170 billion rupees in new taxes this month to secure a massive bailout.
After the International Monetary Fund delayed the release of a crucial USD 1.1 billion portion of a 2019 deal worth USD 6 billion, on hold since December due to Pakistan’s failure to meet the terms, economists and political analysts are pessimistic. The IMF advised Pakistan to raise taxes Friday after the latest round of talks.
“The imposition of more taxes means tough days are ahead for the majority of the people in Pakistan who are already facing higher food and energy costs, but there is no other way out if Pakistan needs the IMF loans, and Pakistan desperately needs it,” said veteran economist Ehtisham-ul-Haq.
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The IMF-Pakistan talks stalled, hurting Prime Minister Shahbaz Sharif, who is trying to avoid a default amid a worsening economic crisis and rising militant violence. Pakistan is still recovering from record-breaking summer 2022 floods that killed 1,739 people and destroyed 2 million homes.
At a UN-backed conference in Geneva in January, dozens of countries and international institutions pledged over USD 9 billion to help Pakistan recover and rebuild from devastating summer floods, but economists and Pakistani officials say those funds will be given for projects, not cash.
Since then, Pakistani Finance Minister Ishaq Dar has said his experts were preparing to raise taxes and cut electricity, gas, and other subsidies to meet the deal’s terms.
The economist Haq predicted that new taxes would raise Pakistan’s inflation rate from 26% to 40%. “Life will become more difficult for the common man if Pakistan fails to revive the IMF bailout without any further delay,” he said in an interview.
Officials say China, Saudi Arabia, and the UAE had promised Sharif’s government financial assistance, but they also wanted Pakistan to finish the 2019 IMF programme.
Senior Pakistani political analyst Imtiaz Gul predicted Sharif’s government would raise taxes on taxpayers.
“We need to broaden the tax base,” he said, but “raising taxes will trigger an increase in the prices of all essential items.”
The government promises to avoid hurting the poor with new taxes. The government said it would tax the wealthy to save the economy.
Pakistan’s foreign exchange reserves dropped to slightly over USD 2 billion. That covers 10 days’ imports. Pakistan-IMF talks are expected to resume Monday or Tuesday. Sharif warned last week that Pakistan would struggle to meet IMF requirements.
Since April’s no-confidence vote ousted Sharif, Imran Khan, the opposition leader, has warned that Pakistan’s economic crisis could lead to a Sri Lanka-like situation. If Pakistan defaults soon, the world could blackmail it over its nuclear programme, he has warned.
Khan claims Washington overthrew his government, which Washington denies.
