On the way to being stable
There is no question that Pakistan’s economy is in the worst shape it has ever been in. It is well known that the current government took over a country with a lot of economic problems, and that it had to make a hard choice to go back to the path of economic security, even though it would cost them a lot politically, and this in the year of general elections.
The best thing for the country was for the government to make this choice.
A recent news story, unfortunately, gives the wrong impression, making it seem like reforms in the energy industry and the tax system have stopped.
This is not the case at all. In fact, soon after taking office, this government made big changes to get the IMF Extended Fund Facility (EFF) programme going again. This made it possible to finish the seventh and eighth reviews well.
During the last three to four months, a lot of important structural changes have been made in the energy industry.
All untargeted incentives in the power and gas sectors have been taken away, and the goal is for tariff changes to cover the full cost of production.
The government has moved towards targeted subsidies to protect the poor and vulnerable from the effects of inflation and rising prices while putting the load on the wealthy.
Also, starting January 1, 2023, the government will give 25% more money to the poorest people through the Kafalat Programme under BISP. This will bring the BISP budget up to Rs400 billion, which is Rs40 billion more than it was before.
The government is also taking all possible steps, both policy and administrative, to fix the two deficits. So, during the first nine months of the current fiscal year, which ends on March 31, 2023, the current account deficit was only $3.4 billion, down from $13 billion during the same time last year.
In the current fiscal year, which ends on June 30, 2023, it is expected to close the current account gap by about $4.5 billion. This will help the country build up its foreign currency savings and rely less on loans from other countries.
Second, as agreed with the IMF, the government has been slowly taking away all tax breaks. The government is aware that these exemptions not only make the tax system less fair, but also cause the government to fall short of its income goals.
Third, compared to the same time last year, net government revenues have grown by 32% in the first eight months of the current fiscal year, which ends on February 28, 2023. The current non-markup expenses have gone down by 19%, mostly because subsidies and loans have been taken away. In order to stop inflation in the country, the SBP has been making its own choices about how to tighten monetary policy.
Because of the above reforms and attempts, Pakistan has already done everything it needed to do for the ninth IMF review.
Again, these changes include steps to widen the low tax base by getting rid of tax exemptions, raising the prices of electricity and gas to pass the cost on to consumers, and reducing subsidies while protecting low-income groups.
The IMF and its staff are scheduled to sign a staff level agreement soon, which should be followed by the IMF Board’s approval of the ninth review.