THE International Monetary Fund (IMF) has agreed to loan Pakistan $7 billion (£5.4bn) to bolster its faltering economy, with Islamabad pledging last Saturday (13) that it would be the last time it relied on relief from the Washington-based lender.
The country agreed to the deal – its 24th IMF payout since 1958 – in exchange for unpopular reforms, including widening its chronically low tax base.
Pakistan last year came to the brink of default as its economy shrivelled amid political chaos following 2022 monsoon floods, decades of mismanagement, and a global economic downturn.
It was saved by last-minute loans from friendly countries, as well as an IMF rescue package, but its finances remain in dire straits, with high inflation and staggering public debts. “This programme should be considered the last programme,” prime minister Shehbaz Sharif told ministers and revenue officials in Islamabad. “We should tax those who are not being taxed.”
Islamabad wrangled for months with IMF officials to unlock the new loan announced last Friday (12), which will be paid out over three years subject to approval by the organisation’s executive board.
It came on condition of farreaching reforms including hiking household bills to remedy a permanently crisis-stricken energy sector and uplifting tax takings.
In a nation of 240 million people, where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022. During the 2024-2025 fiscal year that started at the beginning of July, the government aims to raise nearly $46bn (£35.4bn) in taxes, a 40 per cent rise from the previous year.
More unusual methods have seen the tax authority block 210,000 SIM cards of mobile users who have not filed tax returns in a bid to widen the revenue bracket.
Under the deal “revenue collections will be supported by simpler and fairer direct and indirect taxation by bringing net income from the retail, export, and agriculture sectors properly into the tax system,” IMF Pakistan mission chief Nathan Porter said in a statement.
Islamabad also aims to reduce its fiscal deficit by 1.5 per cent to 5.9 per cent in the coming year, heeding another key IMF demand.
The IMF said the loan and its conditions should allow Pakistan to “cement macroeconomic stability and create conditions for stronger and more inclusive growth.”
But Pakistan’s public debt remains huge at $242bn (£186.7bn), and servicing it will still swallow up half of the government’s income in 2024, according to the IMF. Analysts have criticised Islamabad’s measures as surfacelevel reforms aimed at courting the IMF without addressing underlying problems.
“It is hard to not see old patterns in this new IMF deal,” said Ali Hasanain, associate professor of economics at the Lahore University of Management Sciences. “The IMF has issued a loan similar in size and conditions as the one agreed to five years ago, and five years before that.”
“Will authorities seize the opportunity thus created to embark on fundamental reforms to how the country is run?” he asked. “You would be well-advised not to hold your breath.”
Prime minister Sharif came to power in February elections marred by allegations of rigging, with former prime minister Imran Khan jailed and barred from running. The diet of strict economic measures introduced by his shaky coalition government is likely to undermine their popularity.
There have been protests over tax and bill hikes introduced in last month’s budget, prepared with IMF oversight, and more demonstrations are scheduled for the coming weeks.
