Pakistan is looking to clinch a staff-level agreement on an International Monetary Fund bailout of more than $6 billion this month after addressing all of the lender’s requirements in its annual budget, Minister of State for Finance, Revenue and Power Ali Pervaiz Malik said on Wednesday.
The Pakistan Muslim League-Nawaz (PML-N)-led coalition government has set challenging revenue targets in its annual budget to help it win approval from the IMF for a loan to stave off another economic meltdown, even as domestic anger rises at new taxation measures.
In the budget, the government has increased the taxes on the already burdened salaried class, bought exporters into the normal tax regime, increased the petroleum levy to Rs70, and imposed new taxes on the real estate sectors, among others, to increase tax collection. “We hope to culminate this (IMF) process in the next three to four weeks,” Malik told Reuters, with the aim of thrashing out a staff-level agreement before the IMF board recess. “I think it will be north of $6 billion,” he said of the size of the package, though he added at this point the IMF’s validation was the primary focus. The IMF did not respond immediately to a request for comment.
Earlier on Sunday, Finance Minister Muhammad Aurangzeb expressed optimism about the country’s chances of securing a new IMF bailout, following President Asif Ali Zardari’s approval of the tax-intensive budget for the upcoming fiscal year starting July 1.
“The IMF programme is our assurance in terms of macro stability. We are taking it forward; it is inevitable. I’m very optimistic that we’ll be able to take it through the finish line for an Extended Fund Programme which is going to be larger and longer in nature,” the minister said addressing a press conference in Islamabad.
In today’s interaction, Malik said the point of pushing out a tough and unpopular budget was to use it as a stepping stone for an IMF programme, adding the lender was satisfied with the revenue measures taken, based on their talks. “There are no major issues left to address, now that all major prior actions have been met, the budget being one of them,” Malik said. While the budget may win approval from the IMF, it could fuel public anger, according to analysts.
“Obviously they (budget reforms) are burdensome for the local economy but the IMF programme is all about stabilisation,” Malik said. Sakib Sherani, an economist who heads private firm Macro Economic Insights, said a quick deal with the IMF was needed to avoid pressure on Pakistan’s foreign exchange reserves and the currency given the country’s maturing debt repayments and the effects of unwinding of capital and import controls that were applied earlier. “If it takes longer, then the central bank may be forced to temporarily re-instate import and capital controls,” he said. “There will be a period of uncertainty, and one casualty is likely to be the rally in equities.”
