Pakistan prepares painful reforms in return for IMF aid

At a market in Karachi, the large port city in southern Pakistan, June 11, 2024. AKHTAR SOOMRO / REUTERS Pakistan is threatening to strike hard to fight tax evasion. Islamabad announced draconian measures: anyone who did not declare their taxes would no longer be allowed to buy a car, an apartment, open a bank account and even withdraw cash, said Finance Minister Muhammad Aurangzeb , Sunday September 29. Read also | Article reserved for our subscribers In Pakistan, Nawaz Sharif leaves the responsibility of governing to his brother Add to your selections This new plan from the Federal Board of Revenue, the tax administration, which obtained the approval of the Prime Minister, Shehbaz Sharif, has aims to reduce cash in circulation in the country to put an end to tax evasion. Pakistan is a very poor student when it comes to tax collection. According to the OECD, Pakistan’s tax-to-GDP ratio was 10.3% in 2021. The finance minister had already warned of “a painful transition” a few days earlier, when the country had formally obtained its 25th program from the International Monetary Fund (IMF) since 1958. On the brink of collapse, the country was granted, on September 27, a loan of 7 billion dollars (6.4 billion euros) over three years . Mired in a major political and economic crisis, Pakistan escaped, at the last minute, defaulting on payments in 2023. “If we want this program to be the last, then we will have to carry out structural reforms,” warned Muhammad Aurangzeb. Austerity budget This agreement provides for a substantial increase in tax revenues to increase the tax-GDP ratio and reach 13.5% in three years. To unlock this IMF aid, the government had already significantly increased taxes, as well as the prices of electricity and gas, hitting the middle class hard. In June, he submitted to Parliament an austerity budget with a sharp increase in taxes intended to generate 40% additional revenue. Read also | Article reserved for our subscribers In Pakistan, forced marriages on the rise in families made vulnerable by climate change Add to your selections A half-hearted solution in a country where most of the economy is informal and where only 5, 3 million people – out of a population of 240 million – are subject to income tax. “The wealthy classes have once again escaped the extreme pain of fiscal and economic adjustments, with the working classes having to bear most of this burden,” regrets an editorial in the leading Pakistani daily, Dawn. For the IMF, the new loan and the reforms which must accompany it will make it possible to “create the conditions for solid, inclusive and persistent growth”. To avoid defaulting, Pakistan will have to mobilize 123 billion dollars over the next five years, including 85 billion in debt repayments. China and Chinese banks are the country’s main donors, with more than $20 billion. Along with Saudi Arabia and the United Arab Emirates, it provided financing guarantees to enable IMF assistance to be obtained. You have 49.13% of this article left to read. The rest is reserved for subscribers.



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