As Pakistan pledges to reduce spending and implement structural reforms, the IMF advocates for increased revenue.
The international lender has demanded more aggressive revenue generation and stringent control over public spending as Pakistan continues policy level discussions with the International Monetary Fund (IMF). Pakistan is working to unlock the next $1 billion tranche of its $7 billion Extended Fund Facility (EFF) program, and these talks are a part of that endeavor.
Pay Attention to Revenue and Fiscal Goals
IMF officials were updated on the government’s budgetary performance in the current fiscal year, as well as its aims and projections for the upcoming fiscal year, at the most recent round of discussions. Pakistan has taken a big step toward raising its tax to GDP ratio to 13 percent by proposing to set a tax revenue target exceeding Rs 15000 billion. This is regarded as a crucial step in expanding the revenue base and strengthening fiscal restraint.
It is projected that non tax revenue will amount to Rs2745 billion which will help manage debt and close the fiscal deficit.
Strong internal resource production is crucial for long term economic stability according to the IMF which has repeatedly pushed Pakistan to increase its domestic revenue mobilization. Pakistan is responding by concentrating on lowering tax exemptions, strengthening tax enforcement and broadening its tax base.
Positive Economic Prospects Despite Financing Difficulties
The Finance Ministry predicts that economic growth would surpass 4% in the upcoming fiscal year, in contrast to the 3.5% anticipated for the current one, despite the fiscal tightening. It is anticipated that inflation, a major cause of annoyance for the public, will decline into single digits, giving consumers some respite and increasing their purchasing power.
But there is still a significant barrier outside funding. In the upcoming fiscal year, Pakistan would need to pay more than $20 billion to settle its foreign debt. The government has promised the IMF that friendly nations will continue to support it in addressing this, including by rolling over current deposits.
Rightsizing the Public Sector and Civil Reforms
The government has permanently terminated 150000 open positions from public sector organizations in an effort to lower ongoing costs. The Finance Ministry also told the IMF that it intended to alter the Civil Servants Act of 1973 in order to lower the size of the civil bureaucracy.
With this legislative change, the government would be able to fire unnecessary employees, many of whom are now kept on until retirement despite their poor performance. The government is planning a Golden Handshake program and will provide voluntary retirement packages across several agencies to aid with this transition.
This strategy is modeled after the military’s more performance based structure which retains and promotes only the best performers.
Power Distribution Companies (DISCOs) privatization
Restructuring and privatizing the power industry which continues to lose public money as a result of corruption and inefficiency is still one of the IMF’s core demands. The IMF has tied real progress on this front to its acceptance of a proposed Rs 2 per unit energy pricing decrease.
Pakistan has presented a privatization plan in order to satisfy this requirement with the first phase involving three DISCOs Islamabad, Faisalabad, and Gujranwala. The DISCOs in Hyderabad, Lahore, and Multan will do the same in the second phase. It is anticipated that the action will lessen the strain on the national budget and increase operational efficiency.
What Comes Next?
The outcome of these negotiations will be critical for stabilizing the overall economy and reviving investor confidence in addition to determining how the next tranche of IMF loans is disbursed. The IMF’s assessment of Pakistan’s fiscal restraint and reform agenda will determine the final decision on important policy measures including tax frameworks and electricity tariff reductions, which is anticipated in the upcoming months.
Officials from the Finance Ministry are still hopeful that fruitful talks with the IMF would result in higher industrial production the creation of jobs and economic resilience all crucial components of Pakistan’s long term recovery.
