File photo. Saul Loeb—AFP
The International Monetary Fund (IMF) on Wednesday stressed that it is ready to work with Pakistan to refine its proposed budget for fiscal year 2023-24, as it pointed out several measures that were in violation of the $6.5 billion Extended Fund Facility (EFF)’s conditionalities.
In a statement to media, IMF Resident Representative for Pakistan Esther Ruiz Perez specifically pointed to a proposed tax amnesty scheme—which calls for increasing the “no questions asked” remittance limit from Rs. 5 million to the rupee equivalent of $100,000—as being against the program’s conditionality. Under the deal inked between Pakistan and the global lender, Pakistan cannot introduce any new tax amnesty schemes. “The new tax amnesty runs against the program’s conditionality and governance agenda and creates a damaging precedent,” she said.
Perez said the proposed federal budget “misses an opportunity to broaden the tax base in a more progressive way, and the long list of new tax expenditures reduces further the fairness of the tax system and undercuts the resources needed for greater support for vulnerable BISP [Benazir Income Support Program] recipients and development spending.” She also said that measures to address the energy sector’s liquidity pressures could be included alongside the broader budget strategy.
The resident representative maintained that the IMF staff remains engaged with Pakistan to discuss policies to maintain stability. “The IMF team stands ready to work with the government in refining this budget ahead of its passage,” she said.
In the wake of this statement—coupled with an earlier statement in which Perez had said there was only sufficient time left for one board meeting before the current program ends on June 30—it appears increasingly unlikely the government and the IMF would be able to evolve consensus and revive the stalled bailout seen as key to unlocking much-needed financial inflows.
Pakistan, according to economists, currently has approximately $3 billion in reserves, barely sufficient for even two weeks of imports. If the IMF does not endorse the budget, the document becomes little more than a piece of paper, as it is widely acknowledged that Pakistan would need to enter into a new program immediately after the current one expires. In this scenario, a “mini-budget” that would require far harsher measures would be tabled, rendering the current budget exercise pointless.
Last week, Finance Minister Ishaq Dar unveiled a Rs. 14.5 trillion budget that has been criticized by economists as being neither reform-, nor relief-oriented. Instead of taking any measures to expand the tax net, Dar has opted for a populist—and ultimately damaging—policy of increasing the withholding tax, which is unlikely to have any impact on the informal economy that deals almost exclusively in untraceable cash.
It is also unclear how the government hopes to avoid default without the revival of the IMF program, regardless of the harsh measures required.