Pakistan economic crisis: Amid bailout review, IMF tells Pak to raise taxes to survive

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Published: November 15, 2018 4:16:29 PM

IMF is reportedly dissatisfied with its fiscal policies, and has directed the country to raise taxes in order to survive. Notably, taxes in Pakistan comprise less than 10% of GDP, and less than 5 lakh citizens actually file their return. 

Pakistan had formally approached the IMF in October for loans.

Even as cash-strapped Pakistan looks forward to about $6 billion financial bailout for averting its balance of payments crisis, IMF is reportedly dissatisfied with its fiscal policies, and has directed the country to raise taxes in order to survive. Notably, taxes in Pakistan comprise less than 10% of GDP, and less than 5 lakh individuals actually file their return (half a million) straining the state’s finances. 

Yesterday, Pakistan’s Finance Minister Asad Umar said that the government is looking forward to the International Monetary Fund’s (IMF) support for the efforts aimed at achieving an economic turnaround, media reports said. According to the currently available details, the program’s size will depend on the financing gap projected for over the next three years under the extended fund facility (EFF). The final decision is expected to come by November 20.

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Earlier last month, Saudi Arabia said it would provide Pakistan with a $6 billion rescue package. However, the aid is not enough to help the crisis-ridden state and Islamabad still plans to seek a bailout from the International Monetary Fund (IMF). Pakistan may ask the IMF for up to $6 billion, Geo News reported. If approved, it would be Pakistan’s 13th rescue package from the multilateral lender since the late 1980s. Pakistan had formally approached the IMF in October for loans. An IMF team is currently reviewing Pakistan’s monetary and fiscal policies as well as its monetary needs in keeping with the current account deficit, reported PTI.

Pakistan is currently going through a severe balance of payments crisis, the third one in the last 10 years. Notably, by the end of June 2018, Pakistan had a current account deficit of $18 billion, nearly a 45% increase from an account deficit of $12.4 billion in 2017, according to a report by Centre for Strategic and International studies.

“Exorbitant imports (including those related to the China-Pakistan Economic Corridor (CPEC)) and less-than-projected inflows (export revenues and remittances) have led to a current account deficit widening, with foreign currency reserves levels covering less than two months of imports—pushing Pakistan towards a difficult economic situation,” noted the report.

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