There is a glimmer of hope on the economic front as Pakistan has agreed to revise its budget for the upcoming fiscal year to address the International Monetary Fund’s (IMF) concerns. The proposed changes include implementing new taxes and increasing revenue by Rs 215 billion, while also working to reduce expenses by Rs 85 billion. The IMF had initially raised objections to some of the proposed policies, citing concerns that tax policies were not sufficiently broad in terms of revenue, and an amnesty went against the conditions of the bailout program. Pakistan is seeking $1.1 billion in funding from the IMF before the current program expires on June 30.
This breakthrough is an important development as the country is crippling under the massive amounts of external debt. As per Bloomberg, “Pakistan has been negotiating with the International Monetary Fund to restart its $6.7 billion bailout to avert a default. Authorities are focusing on the restoration of foreign-exchange market functioning, the passage of a fiscal year 2024 budget consistent with program goals and adequate financing. Columbia Threadneedle Investments estimates the nation faces about $22 billion of external debt service for the fiscal year starting in July, about five times its reserves.”
The proposed amendments
Finance Minister Dar, on Saturday, informed the house that the petrol levy will be raised from Rs 50 to Rs 60. In addition, restrictions on all imports, which were imposed in December, have been removed in an attempt to appease the IMF. The amount of money allocated for BISP has been revised from Rs 450 billion to Rs 466 billion for fiscal year 2024. Further, he remarked that there are approximately Rs 3.2 trillion of government and FBR funds currently tied up in litigation, and that resolving these cases in a timely manner is imperative.
The government has also proposed an increase in tax rates for higher income brackets. For those earning taxable income between Rs 1,200,000 to Rs 2,400,000, the proposed tax rate will be 20%, an increase from the current rate of 17.5%. Those earning between Rs 2,400,000 to Rs 3,000,000 will be subject to a proposed rate of 25%, up from 22.5%, while those earning between Rs 3,000,000 to Rs 4,000,000 will face a proposed rate of 30%, up from 27.5%. For those earning between Rs 4,000,000 to Rs 6,000,000, the proposed rate is 35%, up from 32.5%. Anyone earning over Rs 6,000,000 will start paying a proposed rate of 37.5%, an increase from the current rate of 35%.
Additionally, excise duty on Fertilizers and Beverages were jacked up while the tax rate on purchase and sale of immovable property was also increased to 2%.
Are we there yet?
The government and some experts have for a long time been reiterating the statement that all the requisite IMF conditionalities have been met and the delay in the resumption of program is beyond comprehension.
“I have been clear that the IMF as a lender has every right to enforce its conditions and the govt should take steps to comply. However, the prolonged negotiations despite meeting critical conditions were appearing inexplicable. Today’s news says some changes in the budget will be made to clinch the deal. A question will remain that the budget was not part of the 9th review and yet it did become a bone of contention. Does it reflect a lack of trust in the govt or something else. Only the IMF can give an answer,” Senior Investment Banker, Najam Ali, tweeted.
However, others are of the opinion that Pakistan has not complied with all the requirements and a deal would likely to be a result of IMF conceding on some its demands.
Yet, whatever the case may be, Pakistan will surely be better off with the completion of the ninth review, as this would pave the way for other committed inflows and could potentially put the default conversation to rest for the time being.
This breakthrough is an important development as the country is crippling under the massive amounts of external debt. As per Bloomberg, “Pakistan has been negotiating with the International Monetary Fund to restart its $6.7 billion bailout to avert a default. Authorities are focusing on the restoration of foreign-exchange market functioning, the passage of a fiscal year 2024 budget consistent with program goals and adequate financing. Columbia Threadneedle Investments estimates the nation faces about $22 billion of external debt service for the fiscal year starting in July, about five times its reserves.”
The proposed amendments
Finance Minister Dar, on Saturday, informed the house that the petrol levy will be raised from Rs 50 to Rs 60. In addition, restrictions on all imports, which were imposed in December, have been removed in an attempt to appease the IMF. The amount of money allocated for BISP has been revised from Rs 450 billion to Rs 466 billion for fiscal year 2024. Further, he remarked that there are approximately Rs 3.2 trillion of government and FBR funds currently tied up in litigation, and that resolving these cases in a timely manner is imperative.
The government has also proposed an increase in tax rates for higher income brackets. For those earning taxable income between Rs 1,200,000 to Rs 2,400,000, the proposed tax rate will be 20%, an increase from the current rate of 17.5%. Those earning between Rs 2,400,000 to Rs 3,000,000 will be subject to a proposed rate of 25%, up from 22.5%, while those earning between Rs 3,000,000 to Rs 4,000,000 will face a proposed rate of 30%, up from 27.5%. For those earning between Rs 4,000,000 to Rs 6,000,000, the proposed rate is 35%, up from 32.5%. Anyone earning over Rs 6,000,000 will start paying a proposed rate of 37.5%, an increase from the current rate of 35%.
Additionally, excise duty on Fertilizers and Beverages were jacked up while the tax rate on purchase and sale of immovable property was also increased to 2%.
Are we there yet?
The government and some experts have for a long time been reiterating the statement that all the requisite IMF conditionalities have been met and the delay in the resumption of program is beyond comprehension.
“I have been clear that the IMF as a lender has every right to enforce its conditions and the govt should take steps to comply. However, the prolonged negotiations despite meeting critical conditions were appearing inexplicable. Today’s news says some changes in the budget will be made to clinch the deal. A question will remain that the budget was not part of the 9th review and yet it did become a bone of contention. Does it reflect a lack of trust in the govt or something else. Only the IMF can give an answer,” Senior Investment Banker, Najam Ali, tweeted.
However, others are of the opinion that Pakistan has not complied with all the requirements and a deal would likely to be a result of IMF conceding on some its demands.
Yet, whatever the case may be, Pakistan will surely be better off with the completion of the ninth review, as this would pave the way for other committed inflows and could potentially put the default conversation to rest for the time being.