Pakistan takes painful economic route to secure IMF bailout

A trader uses a calculator while selling spices and groceries alongside a shop in Karachi, Pakistan June 11, 2021. REUTERS/Akhtar Soomro

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  • Pakistan faces a balance of payments crisis
  • The government sharply lowers its budget deficit target to 4.9% of GDP
  • Acceleration of the privatization campaign, increase in taxes
  • Pakistan seeks IMF bailout

ISLAMABAD, June 10 (Reuters) – Pakistan will raise taxes on the rich, cut tax leakage and privatize state assets as the cash-strapped nation seeks to restore fiscal rectitude to convince the International Monetary Fund (IMF) ) to release bailout payments.

The nation of 220 million is facing a balance of payments crisis, with foreign exchange reserves falling below $10 billion, barely enough for 45 days of imports, and a current account that is shrinking. expanding and skyrocketing budget deficits.

Pakistani Finance Minister Miftah Ismail, announcing the budget for 2022/23 which starts July 1, said on Friday he would impose an additional 2% tax on people with an annual income of 30 million rupees.

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He said the government would aim to raise Rs 96 billion through privatization in 2022/23. During the current fiscal year, the government has not raised funds from privatization.

Ismail banned government officials from buying new cars for personal and official use to reduce fuel consumption.

“We started making tough decisions…but that’s not the end of making tough decisions,” Ismail said.

The IMF had asked Pakistan to address its high fiscal and current account deficits before issuing a rescue package, as Pakistan had deviated from the policies agreed upon in the last review under the Extended Financing Facility program of the multilateral agency.

It is unclear when the IMF will authorize the release of more than $900 million under its 39-month, $6 billion program.

Ismail said the government would prevent tax evasion which would help raise revenue by 20% to 7 trillion rupees ($34.65 billion) in 2022/23 and reduce the deficit.

The government would target a budget deficit of 4.9% of gross domestic output for 2022/23, significantly lower than the 8.6% estimated for the current year, Ismail said.

“The FY23 budget is an attempt to satisfy the IMF on key issues related to revenue collection, subsidy reductions and achieving fiscal discipline,” said Umair Naseer of Topline Research, a house brokerage.

One of the key steps towards meeting IMF conditions, the removal of costly fuel subsidies, has already been implemented by the government, with fuel prices rising by 40%. Read more

BUDGETARY DISCIPLINE

The government raised the bank tax rate from 39% to 42%, increased capital gains tax to 15% if assets are sold within the year and increased withholding tax up to at 5 %.

Experts have said that the tax measures could give the government additional revenue of 80 billion rupees for the current year.

“Unlike last year’s expansionary budget, which resulted in industry-led GDP growth of 5.97% in FY22 and a huge increase in imports, this budget is more focused on stabilization. economic,” Naseer said.

Finance Minister Ismail said the government would target economic growth of 5% in 2022/23, compared to 5.97% for the current fiscal year which ends June 30.

The government has set the total expenditure target at 9.5 trillion rupees for 2022/23 from 8.49 trillion rupees. Ismail said he expected inflation to average around 11.5% for 2022/23.

Naseer warned that global commodity prices will determine Pakistan’s macroeconomic outlook and the ease with which the government achieves its fiscal targets.

($1 = 202.0000 Pakistani rupees)

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Additional reporting by Syed Raza Hasan; Written by Aftab Ahmed in New Delhi; Editing by Kenneth Maxwell and Alex Richardson

Our standards: The Thomson Reuters Trust Principles.

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