Pakistan’s tax-heavy budget likely to land IMF bailout, but stoke tensions

ISLAMABAD: Pakistan’s plan to raise taxes in its 2024-25 budget and boost state revenues will help it win approval from the International Monetary Fund (IMF) for a loan to stave off another economic meltdown, but could fuel public anger, a former finance official, experts and industrialists said.

The South Asian country has set a challenging tax revenue target of Rs13 trillion ($47 billion) for the year starting July 1, a near-40% jump from the current year, and a sharp drop in its fiscal deficit to 5.9% of GDP from 7.4% for the current year.

Pakistan had to reduce its fiscal deficit as part of negotiations with the IMF, with which it is discussing a loan of $6 billion to 8 billion, as it seeks to avert a debt default for an economy growing at the slowest pace in the region.

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“The budget is enough to get an IMF programme, as long as … the budget is passed in the way it is presented,” former finance minister Miftah Ismail said. But he said the revenue targets will be challenging, as will the growth target of 3.6%.

“The two cannot happen simultaneously,” said Ismail, who as then-finance minister successfully negotiated the revival of Pakistan’s last Extended Fund Facility (EFF) programme in 2022.

Outside analysts largely concur.

Emerging Market Watch’s Metodi Tzanov believes the budget in its current form should be acceptable to the IMF.

“The government ticked almost all the right boxes to comply with IMF conditions, including withdrawal of tax exemptions, raising corporate tax for exporters, increasing the personal income tax rate, tightening the noose around non-filers, and hiking fuel tax,” he said.

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But some said the IMF might baulk if it saw the tax target as unrealistic.

Finance Minister Muhammad Aurangzeb, who presented the budget for the first time, said he expected to seal a Staff-Level Agreement with the IMF in July.