The IMF has approved a new $7 billion package for Pakistan. Meanwhile, the Asian Development Bank has predicted improvements in Pakistan’s economic growth and further reduction in inflation. The main reasons for this include an increase in agricultural income and remittances from abroad, with the GDP growth rate expected to reach 2.8%.
Pakistan has taken loans from the IMF many times before, and to secure the current $7 billion program, the government had to meet all the conditions set by the global body in the budget. This budget was referred to as an “IMF-friendly” budget. The recent 2% reduction in the policy rate is expected to boost investment and business activities in the country.
After these agreements, Pakistan now has another opportunity to introduce reforms across all sectors of the economy, particularly in revenue collection, austerity in expenditures, and reforming energy, pension, and loss-making state enterprises. Attention must also be paid to the declining oil prices in the global market, as rising oil prices increase Pakistan’s import bill.
There are bright prospects of meeting revenue collection targets in the first quarter of the current fiscal year, as the lower policy rate in September and recent government actions are expected to boost economic activities and imports. The currency has remained stable at a certain level for some time now. The dollar has not seen even a slight increase, and our foreign exchange reserves are at satisfactory levels. The balance of trade is also stable, although our imports still include luxury and unnecessary items. Despite this, the situation seems under control, and tax collection is looking promising.
On one hand, Pakistan will remain in the IMF program for the next 37 months, which almost eliminates the risk of default. On the other hand, falling oil prices will help manage the country’s trade deficit. This will make it easier for Pakistan to strengthen its foreign exchange reserves and repay its debts. However, the government’s task does not end here. The real challenge lies in introducing reforms in this improved environment. The government must increase its revenue to cover its deficit. The revenue target set for the current fiscal year, in line with IMF guidelines, must be achieved.
While the government is expressing satisfaction over the approval of funds, several analysts believe that Pakistan is being given yet another opportunity to solve its longstanding economic problems through reforms. However, some believe that doing so may not be that easy. In fact, the IMF funding serves as a lifeline for Pakistan.
We have already experienced the consequences of disregarding the IMF’s instructions last year. After entering into an agreement with the IMF, the PTI government chose a different approach to managing the country, which resulted in severe consequences. Pakistan was on the brink of bankruptcy, and the people were already financially broken. The country was completely isolated from global financial institutions, and friendly nations withdrew their support. Even our brotherly Islamic countries distanced themselves, creating a dangerous situation.
During this time, the 16-month tenure of Shehbaz Sharif’s coalition government made tremendous efforts to bring the country back on track. Under a new vision and strategy, the government began negotiations with the IMF to save the country from bankruptcy, accepted its tough conditions, and successfully initiated reforms. Although the situation improved, the public paid a heavy and unbearable price. Fortunately, the caretaker government that followed continued to implement these policies. Pakistan remained connected to the global community, and progress continued. After the 2024 elections, Shehbaz Sharif’s leadership signed a staff-level agreement with the IMF for a $7 billion bailout package, sparking optimism for significant improvements in the situation. The country’s economic indicators began to show a positive trend. Once the IMF’s Executive Board approves the agreement, and the funds are disbursed, the situation is expected to improve even further.
On the other hand, the prices of electricity and gas remain uncontrolled. Over the past three decades or more, the way our rulers, policymakers, and responsible authorities have handled these sectors is now being partially exposed, and the facts emerging are alarming and suspicious. These matters cannot be considered satisfactory in any way.
The terms agreed with Independent Power Producers (IPPs) seem to be anti-public. As a result of adhering to these terms, today, electricity bills have become unmanageable. The price, which includes payments to IPPs, has become a heavy burden on the public as well as on industry and trade. Our industrial production is being priced out of the global market, slowing down industrial growth. The shutdown of industries has led to increased unemployment, and tax collection is continuously declining. The government is increasing tax rates to meet its revenue targets.
Businesspeople are fed up with high electricity bills and are refusing to pay taxes. They previously did not allow the CPO system to work, and the government has acknowledged its failure. Now, the “Trader-Friendly Scheme” has also been rejected. The government does not appear serious about addressing issues with the IPPs. The transparency of these matters remains highly questionable. Some hidden hands seem involved in the electricity crisis, so it appears that the situation may not improve anytime soon. The rulers will continue to appease the public with hollow promises. Over the past few years, Pakistanis’ incomes have not seen any significant increase, while the cost of living continues to rise steadily.
Additionally, the government faces challenges in controlling the ever-expanding volume of current expenditures, which sometimes leads to harsh criticism from the public. The government claims to be taking several steps to reduce the size and costs of the federal government. It has announced plans to close or privatize departments and entities like the Pakistan Works Department and Utility Stores Corporation. Merging several ministries and departments is also under consideration.
The government currently faces an annual deficit of five trillion rupees in the energy (electricity and gas) sector. Similarly, losses incurred by state-owned enterprises are estimated to be around one trillion rupees. Economists believe that under the IMF program, electricity and gas prices may rise, and the government may impose additional taxes to cover its deficit. If the program is fully implemented, its positive effects could lead to economic stability in the future.
There is no doubt that there are many reforms without which it has become almost impossible for Pakistan to move forward. Bringing retailers into the tax net, taxing agricultural income, imposing taxes on the real estate sector, improving the FBR, making loss-making entities profitable or getting rid of them, and establishing an integrated system to curb electricity and tax theft are essential reforms that cannot be ignored. Currently, the common man is facing difficulties, bearing the entire burden of taxes, and suffering the most from inflation.
It is certain that if we do not correct our course today, a time will come when we will lose all credibility, and perhaps no one will extend a helping hand. We will have to work hard to change our circumstances, as we can only rely on others for a limited time.