The International Monetary Fund has announced it has reached a new $7 billion loan deal with Pakistan in a bid to shore up its faltering economy.
Islamabad has agreed in return to carry out further unpopular reforms, including broadening the South Asian nation’s chronically low tax base.
Pakistan last year teetered on the brink of bankruptcy as the economy shrank amid political chaos, disastrous 2022 monsoons and decades of mismanagement — as well as the global economic downturn.
The nation was saved by last-minute loans from friendly countries, as well as support from the IMF, but its finances remain in dire straits with high inflation and skyrocketing public debt.
The new three-year deal, which still needs approval by the IMF’s Executive Board, will allow Pakistan to “consolidate macroeconomic stability and create conditions for stronger, more inclusive and resilient growth,” it said in a statement on Friday.
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Islamabad has been wrangling for months with IMF officials to unlock the new loan — its 24th payment from the lender in more than six decades.
It came on the condition of extensive reforms, chief among them increasing the chronically low tax base.
In a nation of more than 240 million people and where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022.
During the 2024-25 fiscal year that began in early July, the government aims to collect nearly $46 billion in taxes, a 40 percent increase from the previous year.
More unusual methods have seen the tax authority block 210,000 SIM cards of mobile phone users who have not filed tax returns in a bid to widen the revenue bracket.
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Islamabad also aims to reduce its fiscal deficit by 1.5 percent to 5.9 percent next year, taking into account another key IMF demand.
But Pakistan’s public debt remains huge at $242 billion, and servicing it will still swallow up half of the government’s revenue in 2024, according to the IMF.
Analysts criticized Islamabad’s measures as surface-level reforms — aimed at courting the IMF without addressing the underlying problems.
“It’s hard not to see old patterns in this new IMF deal,” Ali Hassanain, associate professor of economics at Lahore University of Management Sciences, told AFP.
“The IMF has issued a loan similar in size and terms to what was agreed five years ago and five years ago.”
“Will the authorities seize the opportunity thus created to initiate fundamental reforms in the way the country is run?” asked. “You’d be well advised not to hold your breath.”
Public reaction
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Prime Minister Shehbaz Sharif swept to power in February elections marred by allegations of fraud — with former prime minister Imran Khan jailed and barred from standing.
The diet of austerity measures introduced by his shaky coalition government is likely to undermine their popularity.
Scattered protests have already taken place over tax and bill hikes introduced in last month’s budget — prepared with IMF oversight — and more protests are planned for the coming weeks.
While about 40 percent of the population already lives below the poverty line, the World Bank said in April that it feared 10 million more Pakistanis would fall below that line.
Pakistan’s latest loan of $3 billion from the IMF in 2023 has turned out to be a lifesaver.
But it also came on the condition of unpopular austerity measures, including ending subsidies that reduce consumer costs.
In recent months, the current account has recovered slightly and high inflation has begun to recede.
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The IMF forecasts growth of two percent this year, with inflation expected to reach nearly 25 percent annually, before easing gradually in 2025 and 2026.
Source: AFP