Pakistan is on the verge of securing a staff-level agreement with the International Monetary Fund (IMF) for a bailout exceeding $6 billion this month, following the fulfillment of the lender’s requirements in the country’s annual budget, Minister of State for Finance, Revenue and Power Ali Pervaiz Malik announced on Wednesday.
The Pakistan Muslim League-Nawaz (PML-N)-led coalition government has introduced ambitious revenue targets in its latest budget to meet IMF conditions, aiming to prevent another economic collapse. This move comes despite growing domestic discontent over new tax measures.
Key budgetary changes include increased taxes on salaried individuals, integrating exporters into the regular tax regime, raising the petroleum levy to Rs70, and imposing new taxes on the real estate sector. These steps are expected to boost tax revenues significantly.
“We hope to culminate this (IMF) process in the next three to four weeks,” Malik told Reuters, expressing optimism about finalizing a staff-level agreement before the IMF board recess. He estimated the bailout package to be “north of $6 billion,” emphasizing that IMF validation is currently the primary goal.
The IMF has yet to respond to requests for comment.
On Sunday, Finance Minister Muhammad Aurangzeb expressed confidence in securing the new IMF bailout, following President Asif Ali Zardari’s approval of the tax-heavy budget for the upcoming fiscal year starting July 1.
“The IMF programme is our assurance in terms of macro stability. We are taking it forward; it is inevitable. I’m very optimistic that we’ll be able to take it through the finish line for an Extended Fund Programme which is going to be larger and longer in nature,” Aurangzeb stated at a press conference in Islamabad.
During Wednesday’s interaction, Malik underscored that the stringent budget was designed to facilitate the IMF programme, noting that the lender was satisfied with the revenue measures implemented.
“There are no major issues left to address, now that all major prior actions have been met, the budget being one of them,” Malik said.
While the budget may garner IMF approval, it is likely to stoke public anger, analysts warn.
“Obviously they (budget reforms) are burdensome for the local economy but the IMF programme is all about stabilisation,” Malik acknowledged.
Economist Sakib Sherani, head of Macro Economic Insights, stressed the urgency of securing a quick deal with the IMF to alleviate pressure on Pakistan’s foreign exchange reserves and currency amid maturing debt repayments and the unwinding of earlier capital and import controls.
“If it takes longer, then the central bank may be forced to temporarily reinstate import and capital controls,” Sherani noted. “There will be a period of uncertainty, and one casualty is likely to be the rally in equities.”
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