The new $7 billion aid package agreement struck between Pakistan and the International Monetary Fund (IMF) will aid in bringing macroeconomic stability to the nation, according to Finance Minister Muhammad Aurangzeb on Saturday.
The announcement of the development by the international lender late last night provided much-needed relief to the country. Pakistan should be able to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth,” according to the IMF’s statement, which is contingent to the program’s approval by the IMF Executive Board.
The most recent bailout, which comes to Pakistan in the form of loans, comes after the government promised to carry out reforms, which included a significant endeavor to increase the nation’s tax base. Aurangzeb stated that the agreement will help Pakistan achieve macroeconomic stability in his remarks on it today.
Geo News reported him as adding that as part of the program, “we need to ensure structural reforms and bring self-sustainability in areas of public finance, energy, and state-owned institutions.”
Pakistan’s economy, which has been suffering from long-term mismanagement, is on the verge of collapse due to the Covid-19 epidemic, the consequences of the conflict in Ukraine, supply constraints that have caused inflation, and historic floods that will devastate a third of the nation in 2022.
Pakistan was compelled to resort to the IMF for help due to its declining foreign currency reserves, and in the summer of 2023, it received its first emergency loan from the organization.
The new program “aims to capitalist on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers, and remove economic distortions to spur private sector-led growth,” according to a statement released by the IMF earlier today, which quoted Nathan Porter, the Fund’s mission chief to Pakistan.
The lender stated, “Within this context, the authorities intend to enhance tax revenues through measures of 1.5% of GDP in FY25 and 3% of GDP over the program.” “Simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system” is how the increased revenue collections will be attained.
The statement also stated that by establishing a “National Fiscal Pact,” the federal and provincial governments have committed to re balancing expenditure in accordance with the 18th Amendment to the Constitution. The accord will give provinces more control over issues including health, social protection, education funding, and investment in regional public infrastructure.
“Fully harmonizing their Agriculture Income Tax regimes through legislative changes” with the corporate and federal income tax systems is already a commitment made by the provinces. The change will take effect on January 1, 2025.
Additionally, the government will minimize losses and increase the profitability of the electricity industry by implementing timely tariff adjustments, reforms, and a moratorium on additional unneeded generation capacity construction. The government is still dedicated to implementing focused subsidy reforms and substituting direct and focused subsidies for household cross-subsidies.”
