In a recent interview with an international broadcaster, Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), called for Pakistan to distribute subsidies more fairly, redirecting resources from the wealthy to those in need. Georgieva urged the country to increase tax revenues from those who are making good money, both in the public and private sectors, to contribute to the economy.
The IMF is keen for Pakistan to function effectively as a country and avoid dangerous levels of debt, which could lead to the need for debt restructuring. Georgieva expressed concern for the people of Pakistan, who have been devastated by floods affecting one-third of the population.
The IMF has recommended that Pakistan broaden its narrow tax base, with only 3.5 million return filers out of a population of over 200 million. The lender has also called for the removal of untargeted subsidies and the redirection of resources towards the poor, including the Benazir Income Support Programme (BISP), for which the government has increased the allocation from Rs360 billion to Rs400 billion to protect the poorest from inflationary pressures.
The IMF’s review mission has made it clear that Pakistan must undertake tax revenues from all those who possess income to contribute to the national kitty.
Pakistan faces a looming balance of payment (BoP) crisis, with external debt servicing of $27 billion required in the next financial year. The ongoing IMF programme of $6.5 billion under the Extended Fund Facility (EFF) is due to expire on June 30, 2023, and there is no possibility of any further extension in the ongoing EFF arrangement.
The IMF could help Islamabad overcome the crisis by ensuring that the country can pay its debt obligations without plunging into default. The revival of the IMF programme will be a pre-requisite step for seeking any debt restructuring, so the government is currently focusing on it.
