Pakistan Urged to Withdraw Rich Subsidies as IMF Deal Date Remains Uncertain

Pakistan’s Finance Minister Ishaq Dar has been unable to give a firm date for a staff level agreement with the International Monetary Fund (IMF), as the country’s economic crisis deepens. Dar’s ministry believes that Pakistan will remain in the Fund’s programme in the short- to medium-term period. However, the World Bank has urged Pakistan to withdraw Rs340 billion annual subsidies being availed by the rich. Tobias Haque, the lead economist of the World Bank, also suggested that the government could improve revenues by increasing taxation on assets and property, closing the exemptions that cost around 30% of the total GST every year.

The finance ministry officials responsible for the poor budgeting were sitting on the stage, including those who have developed a habit of reprinting budget books for the past three years after committing blunders in the first set of published books. Speaking at a seminar on reviving the economic stability through strengthening of the Public Financial Management, Dar said that Pakistan was “absolutely committed” to completing the Extended Fund Facility Programme with the IMF.

The current account deficit is unmanageable, and the tax to GDP ratio is low, while the propensity to save in the economy is rapidly declining, said the Secretary Finance. The pension bill was getting out of control, and the debt was increasing rapidly. The secretary further said that the privatisation programme has not worked, and there was a need to think about something else.

To fix the current crisis and move towards sustainable economic growth, Pakistan needs to fix its budget, said Tobias Haque. The government can cut spending that contributes little to growth and development, including Rs340 billion annual subsidies that primarily benefit the better off. The government expenditures have done little good for long-term development and growth in Pakistan.

The severity of the economic crisis was worse than Dar thought. “Frankly, from a distance, I did not know how deep the quagmire was,” he admitted. “This time the quagmire was deeper and much more complicated than that of 1998 and 2013,” said the Minister. Last week, the finance minister approved Rs18.4 million additional budget for the PM’s House for the employees-related expenses.

Dar maintained that Pakistan will not default. “This persistent fake propaganda regarding the country defaulting on its international obligations is completely ill and is harming the country,” he said. Pakistan faces a severe economic crisis, and international credit rating agencies have downgraded the country on fear of high risk of default. The current IMF programme is going to end in June, and the use of the title from short to medium-term against the IMF programme suggests that the Ministry of Finance is thinking of getting another IMF programme.

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