Pakistan has received the next tranche of $1.05 billion as part of the IMF loan programme. The foreign reserves are expected to receive a boost if Pakistan receives financial assistance from China as the prime minister is visiting the nation. Despite the situation, the economy remains vulnerable owing to the risk of delayed structural reforms and widening imbalances.
The IMF bailout programme will expire in September this year. The global lender will hold the seventh review in April and the final one after the annual budget. Pakistan, which has sought 20 bailouts in the last 50 years, wants to end reliance and break the begging bowl. Finance Minister Tarin, who negotiated the last leg of the current IMF loan, is targeting a budget shortfall to 5% – 5.25% of GDP from 6.1% and wants to spur economic growth from 6% to 5%, stating that sustainable growth is necessary to ensure that we don’t need another bailout.
As part of the loan programme, Pakistan will have to implement several more conditions till June. This includes narrowing personal income tax slabs which will affect the salaried class and individuals doing business. The government claims it will provide relief to the salaried class and the prime minister has urged private businesses to raise employees’ salaries. The IMF wants to jack up tax slabs in the next budget which the finance minister resisted the previous fiscal year.
Prime Minister Imran Khan has been a vocal critic of the IMF bailout, saying the government took loans under compulsion for the economy. How will the government ensure an IMF-free future remains known? This includes issuing bonds, boosting exports, energy tariffs and incentivizing businesses. The government has increased central bank autonomy but has been unable to broaden taxes or sell loss-making state-run firms. Pakistanis should brace the new conditions which are set to be imposed.
Even after the structural reforms, Pakistan’s economy is forecast to grow by 4% this year, lower than the economic team is aiming for. Inflation rate will remain high at around 9.4%. These steps are harsh but are necessary so that the economy can have sustainable growth and eventually lead us towards an IMF-free future.
