Pakistan Prime Minister Shehbaz Sharif in the Egyptian pavilion at COP27 in the Egyptian city of Sharm el Sheikh. EFE/FILE/Carles Grau Sivera

Pakistan raises taxes in last attempt to secure IMF loan

Islamabad, June 25 (EFE).- Pakistan’s parliament gave nod to changes to the budget for the next fiscal year on Sunday, imposing new taxes and making further cuts in government spending in a last-ditch effort to secure a critical funding from the International Monetary Fund (IMF) to avoid a possible default.

The government proposed fiscal adjustments to the 2023-24 budget as dictated by the global lender.

According to Finance Minister Ishaq Dar, under the adjustments, the government will raise an additional 215 billion rupees ($755 million) in new taxes and cut around 85 billion rupees ($298 million) in government spending to shrink the fiscal deficit.

However, the new measures will not reduce the federal development budget or the salaries and pensions of government employees.

“We have been able to give economic stability to the country to a large extent,” Dar said, winding up his budget speech at the National Assembly or lower house of the Parliament on Sunday.

The budget review was conducted after Prime Minister Shehbaz Sharif held three meetings with IMF chief Kristalina Georgieva on the sidelines of the Global Financing Summit in Paris over the past couple of days.

A statement from the PM’s office said that Sharif reiterated Pakistan’s commitment to complete the program with the IMF during his meetings with Georgieva.

Several virtual meetings were also held between Pakistani government officials in Islamabad and IMF staff in Washington to to resume the stalled $6.5 billion IMF bailout program agreed upon in 2019.

“Pakistan and IMF had detailed negotiations for the last three days as a last effort to complete the pending review,” Dar told parliament.

He stated that the changes to the budget would set the country’s revenue collection target at 9.415 trillion rupees ($33 billion) and fix total spending at 14.480 trillion rupees ($51 billion). “We have ensured that the new tax will not affect the poor.”

The minister announced the lifting of a ban on all imports, which was enforced in December last year to reduce the current account deficit.

The IMF funding is crucial for Pakistan, as its foreign exchange reserves have dropped to an alarming level of below $3 billion for the first time in nine years, which is barely enough to cover less than one month’s bill of controlled imports.

According to the State Bank of Pakistan, due to external debt repayments, the country’s foreign exchange reserves have decreased by an additional $170 million to $2.92 billion.

Economic analysts had warned that the country could face a debt default if the IMF program was not revived. However, the announcement for a final deal is yet to be made.

If an agreement is signed, it is expected that the South Asian nation will receive a tranche of $1.2 billion from the global lender, which will unlock other bilateral and multilateral financing for the debt-ridden economy. EFE

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