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Pakistan Govt Budget Delay Due to IMF Talks

Pakistan Govt Budget Delay Due to IMF Talks: Delays in budget sessions owing to upcoming IMF discussions (IMF). The administration is contemplating holding the budget session on June 6 and presenting the budget for 2022-23 on June 10. Miftah Ismail IMF Talsk 2022.

$6 billion deal with IMF Pakistan

On May 18, Pakistan and the International Monetary Fund (IMF) will meet in Doha. The government must eliminate gasoline and electrical subsidies, as the IMF demands. If discussions succeed, Pakistan will get $0.96 billion.

Nathan Porter, IMF mission leader in Pakistan, will meet with Pakistani authorities. Pakistan has already agreed to stop unpaid IMF handouts. Pakistan has asked the global lender to boost the bailout to $8 billion. But the IMF hasn’t made a decision yet.

The government will have to make tough choices, including cutting spending and raising income. The Federal Board of Revenue Chairman has already hinted at additional reductions in affluent class and industry tax breaks. The budget for 2022-23 may potentially raise personal income tax rates.

According to government sources, the budget will be quickly approved since there is no opposition in the National Assembly. As a result, there will be no urgency to produce the budget with the IMF.

Miftah Ismail budget
Pakistan Govt Budget Delay Due to IMF Talks 3

Why Is Pakistan’s Economy In Freefall?

On June 11, Pakistan’s government released its first annual budget for 2019-2020. However, it took until June 28 to approve it. It took so long because parliamentarians vowed to demonstrate against the government’s perceived economic ineptitude.

Pakistan’s current economic position is concerning. The Pakistan Economic Survey, a government-issued assessment released before the annual budget presentation, paints a bleak image of the home economy this year.

Almost every financial indicator has been trending south. The growth rate dropped by nearly half, from 6.2 percent to 3.3 percent. It is expected to decline to 2.4% next year, the lowest level in 10 years. Since the start of the fiscal year, the Pakistani rupee has lost a fifth of its value versus the dollar. Inflation is expected to hit a 10-year high of 13% in the next year.

Then there’s the matter of the growing debt, which consumes almost 30% of the budget each year. Pakistan continues to take out loans to make payments on previous debts. It just agreed to another rescue package for $6 billion with the International Monetary Fund (IMF).

Prime Minister Imran Khan proposed the formation of a special committee to study why the government is so in debt in a televised speech after his budget presentation.

However, Khan has to look at his own government’s budget to realize the issue: the nation has poor income streams and large non-development expenditures, a formula for financial catastrophe.

Pakistani authorities have struggled to create efficient tax collecting systems for decades. Pakistan has one of the lowest tax-to-GDP ratios globally, with barely one percent of the population paying taxes.

Tax evaders have led succeeding administrations, avoiding tighter limits. They can do so due to government inertia and extensive corruption. Bribing is much cheaper for them than paying their dues.

As a result, the poor in Pakistan bear the brunt of the tax burden, which they pay in different indirect ways and who are already struggling to make ends meet. A third of the population is now living in poverty.

Khan swore to fight tax evasion and corruption before becoming a power, but nothing has happened. He has not, for example, adopted any steps to combat crime inside his party. A member of Khan’s cabinet recently admitted to evading taxes for years by transferring his expensive homes to one of his subordinates. Still, no action has been taken against him so far.

IMF Talks Frequently Asked Questions on Pakistan

This selective justice explains why the government’s latest tax amnesty plan, which forgives tax arrears in return for a fee, failed. Meanwhile, Khan’s administration is struggling to decrease non-developmental spending.

After debt service, the military gets between 18 and 23% of the annual budget.

The military collects money from the state budget and its significant business enterprises, which generate $1.5 billion yearly. It recently entered mining and oil and gas exploration, aided by Khan’s administration. So, despite its wealth, the army continues to burden the Pakistani economy and enjoy special treatment. Therefore, this is unlikely to change under the present administration.

Khan announced earlier this month the creation of the National Development Council to supervise Pakistan’s economic development plan. The army commander is also a member of the council, indicating that the military would continue to be involved in financial decisions in the future.

Khan announced a voluntary military budget decrease a few days before the budget was presented to parliament, citing the economic upheaval. However, when the budget was released, it revealed a 17.6% rise in military spending over the previous year. Many believe the last declaration was a ruse to deceive Pakistan’s foreign creditors, notably the IMF, encouraging the government to reduce non-development spending.

Despite external pressure, defense expenditure remains a priority. Officially, the military justifies this approach by citing alleged threats from neighboring nations. Less is made that terrorist groups targeting Afghanistan and India may organize on Pakistani land.

As long as they exist, low-intensity confrontations with surrounding nations exist, justifying higher military expenditure to safeguard Pakistan from “foreign enemies”.

Pakistan’s damaged economy forces it to borrow from international creditors, increasing its debt and driving it closer to ruin.

Those in authority and those with economic advantages must now realize that the current quo is unsustainable. The only solution is a fair tax system and a reduction or freeze in the ever-increasing military budget.

If Pakistan wants to prevent an economic calamity, it must modify current spending priorities and focus on investment that benefits the poor, not only the civilian and military elites.

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