ISLAMABAD: Prime Minister Shehbaz Sharif said on Tuesday Pakistan’s budget for fiscal year 2024-25 was finalized with inputs from the International Monetary Fund (IMF) and he hoped for “good news” from the lender soon on a new bailout deal.
Pakistan’s hopes its plan to raise taxes in the proposed budget and boost state revenues will help it win approval from the IMF for a loan to stave off another economic meltdown,
The South Asian country has set a challenging tax revenue target of 13 trillion rupees ($47 billion) for the year starting July 1, a near-40 percent jump from the current year, and a sharp drop in its fiscal deficit to 5.9 percent of GDP from 7.4 percent for the current year.
Pakistan had to reduce its fiscal deficit as part of negotiations with the IMF, with which it is discussing a loan of $6-8 billion, as it seeks to avert a debt default for an economy growing at the slowest pace in the region.
“It is a fact that we finalized the budget together with the IMF, these are inherited conditions but this was their demand,” Sharif said during a cabinet meeting.
“I won’t say anything premature. I feel that if IMF gives us an answer today, I will present it to you tomorrow. We should hope that we get good news from them.”
Finance Minister Muhammad Aurangzeb, who presented the budget earlier this month, has said he expected to seal a Staff-Level Agreement with the IMF in July.
The big rise in the tax target is made up of a 48 percent increase in direct taxes and 35 percent hike in indirect taxes. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64 percent.
Taxes have notably been slapped on previously protected export-oriented sectors such as textiles, which consistently make up over half of Pakistan’s exports, and whose receipts keep a persistently high external account deficit in check.
Sharif’s fragile coalition government does not have the luxury of a parliamentary majority to help it pass the budget smoothly. Sticking to the reform measures will require it to resist pushback from key economic sectors as well as a broader public already angry at the prospect of further price hikes.
Increasing the tax base in an economy where proper documentation is often lacking will require considerable time and effort. Pakistan’s undocumented parallel economy is huge and 44 percent of its nominal GDP does not contribute significantly toward direct tax revenue, according to the Tola Associates, a tax firm.
Traders and agriculturalists in particular, both politically influential, have resisted the government’s push to register themselves and document their sales.
PRIVATIZATION OF PIA
Another key point in the budget and a major precondition for an IMF loan is the privatization of loss-making state entities. Pakistan is looking to make its first major sale in nearly two decades as it sells a stake in its national airline, the first in a series of sales, particularly in the troubled power sector.
Sharif said on Tuesday Pakistan will hold bidding for PIA during the first week of August.
“Companies showing interest in pre-bidding process are visiting various sites of the PIA,” the PMO said in a statement. “The PIA’s bidding will take place during the first week of August.”
Pakistan’s government has previously said it is putting on the block a stake of between 51 percent and 100 percent in the loss-making airline.
A popular airline during its heydays in the ‘60s and ‘70s, PIA has grappled with financial losses, mismanagement, and operational challenges in recent years. It has also been burdened by a high debt load, inefficiencies, and corruption allegations, resulting in an overall decline in its financial performance.
The disposal of the flag carrier is a step that past elected governments have steered away from as it is expected to be unpopular with the masses. However, progress on privatization is key to helping cash-strapped Pakistan pursue a fresh loan agreement with the IMF.
With inputs from Reuters
