Pakistan will increase taxes in exchange for a significant IMF bailout

Pakistan Economic Crisis: The International Monetary Fund postponed the disbursement of a vital USD 1.1 billion tranche of a 2019 contract worth USD 6 billion, prompting gloomy predictions from economists and political observers.
Cash-strapped Officials and experts said Monday that Pakistan will impose additional taxes totaling 170 billion rupees this month in an effort to get a significant bailout, but they also expressed concern that the new levies may hasten the nation's spiralling inflation.

The dire outlook from economists and political analysts comes 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 over Pakistan's failure to meet the terms. The latest round of the talks between Pakistan and the IMF concluded Friday with the fund recommending steps including imposing new taxes.

There is no other option if Pakistan requires the IMF loans, which Pakistan sorely needs, according to economist Ehtisham-ul-Haq. “The imposition of extra taxes implies harsh days are coming for the majority of the people in Pakistan who are already suffering rising food and energy expenses,” he added.

The impasse in the discussions between the IMF and Pakistan was regarded as a setback for Prime Minister Shahbaz Sharif's administration, which is trying to avoid default in the face of a deteriorating economic crisis and an uptick in terrorist violence. In the summer of 2022, Pakistan saw record-breaking floods that left 1,739 people dead and 2 million dwellings in ruins.

Numerous nations and international organisations offered more than USD 9 billion to Pakistan in January during a UN-sponsored meeting in Geneva, but economists and Pakistani officials insist that the money would be used for projects rather than as cash.

Ishaq Dar, the finance minister of Pakistan, has since stated that in order to comply with the provisions of the agreement, his experts are ready to levy higher taxes and reduce subsidies for gas, electricity, and other services.

The economist Haq predicted that with the implementation of additional taxes, Pakistan's current inflation rate of 26% will increase to 40%.

. However, he asserted in an interview that “life will become more difficult for the average guy” if Pakistan failed to immediately resurrect the IMF loan.
Officials claim that a number of friendly nations, including China, Saudi Arabia, and the United Arab Emirates, gave Sharif's administration financial assurances, but they also wanted Pakistan to finish the 2019 IMF programme.

Senior Pakistani political analyst Imtiaz Gul predicted that Sharif's administration will likely increase taxes on people who are currently paying taxes.

He said that expanding the tax base was necessary, but warned that doing so would result in higher costs for all necessities.

The administration is adamant that it would implement additional taxes without harming the poor. According to the administration, the new taxes will only be levied against those who can afford to pay higher taxes in order to maintain the economy.
The foreign exchange reserves of Pakistan have decreased to little over USD 2 billion. Just enough to cover imports for ten days. Officials have stated that Pakistan's discussions with the IMF will essentially begin later on Monday or Tuesday. Last week, Sharif issued a warning that Pakistan will find it difficult to adhere to the IMF's requirements.

Imran Khan, who succeeded Sharif and is now the head of the opposition following his expulsion in the no-confidence vote in April, has repeatedly warned that Pakistan's economic crisis might worsen to the point where it resembles Sri Lanka. In the event that Pakistan fails in the near future, he has openly warned that the international community may use the country's nuclear programme as leverage.

Washington disputes Khan's claim that his administration was overthrown as part of a US plan.