Foreign aid a breather, but Pak economic woes far from over
While the government of Prime Minister Imran Khan has managed to secure a breather for the economy with Saudi help, larger challenges which include raising tax revenues remain to be addressed.
The International Monetary Fund (IMF) has asked Pakistan to slap new taxes worth nearly Rs 160 billion including raising the standard general sales tax to 18%, but finance minister Asad Umar insists that signing an agreement with the IMF “is one of many options given the help we have received from friendly states.”
Besides the tax efforts, the IMF has suggested improving revenue collection at the import stage due to 26% rupee depreciation since January and further devaluation under the IMF programme.
This would put pressure on prices, say analysts, and may cause headaches to the government, already under challenge from opposition parties. “They hold the government in Punjab with only one seat and the opposition knows fully well how to exploit angry public sentiments to unseat the government there,” said analyst Asad Saeed.
It will be a challenge for the government to impose new taxes as well as strike a balance between direct and indirect taxes.
After coming to power, the PTI government reduced the annual tax collection target to Rs 4.398 trillion. In the first four months of current fiscal year, it suffered a shortfall of Rs 68 bn.
Part of the problem is the notoriously corrupt tax collection machinery where officials take bribes to keep people out of the tax net. Out of frustration, Khan said last week that if the Federal Board of Revenue, the country’s main tax collection agency, does not get its act together, the government would consider dissolving it.
A deal with the IMF is inevitable. Pakistan and the IMF have been negotiating a bailout package to avoid defaulting on international payments. Islamabad is also talking to United Arab Emirates and China for aid.
The pressure on the government is mounting. The country registered its highest-ever current account deficit of $18 bn in the last fiscal year, which eroded foreign exchange reserves.
ISLAMABAD: