What Punjab’s 182 billion rupee missed IMF target means for local businesses

Business owners in Punjab are preparing for tough times ahead as the provincial government of Punjab missed the budget surplus goal set by the International Monetary Fund (IMF) for this quarter by a staggering 182 billion rupees. Not meeting the IMF stipulated objectives might foster bad will as international lenders will be weary of extending loans to Pakistan in the future.

Suppose lawmakers in Islamabad direct Punjab’s provincial government to meet the budget surplus goal at any cost. In that case, it will likely spell bad news for the businesses and people that call it home. This is because a budget surplus can be increased via either reducing government expenditure or levying higher taxes: Neither of which are optimal.

While customs duties and corporate taxes remain under Islamabad’s control, the provincial government in Punjab has the authority to raise service and property taxes. This is likely to happen as the surplus goal for this quarter was missed by a margin of an uneasy 53%.

According to Punjab’s Housing, Urban Development, and Public Health Engineering Department (HUDPHED), there were 1,680 approved construction companies in 2022, with many more operating unofficially without approval. If property taxes rise, the construction companies are expected to suffer as their clients will be stuck paying the higher taxes leaving less money for the owners of the companies.

Moreover, an increase in services tax will cause businesses to lose out on either profits or customers. This is because businesses will have to make the tough decision of either absorbing the higher sales tax while holding prices constant or passing on the tax to their customers in the form of higher prices – which might turn customers away.

If the government of Punjab decides to raise the surplus by decreasing its expenditures on projects, this will be bad news, too.

This is because businesses that rely on public contracts will suddenly not be able to secure new contracts. And with the provincial government tightening its metaphorical belt, the employees of these businesses will be pushed to do the same too.

This is because the loss of contracts might cause businesses to lay their employees off. The result of this decision can only be negative as laid-off workers will think twice before spending money, which will translate into a loss of sales for local businesses.

While experts believe that following the conditions of the IMF is necessary, this discipline might stir up some issues for businesses. For now, all eyes are on the government of Punjab, and only time will tell what is to happen next.