Since Prime Minister of Pakistan Imran Khan took his office in August, last year, there has been a lot of debate regarding whether or not to seek IMF bailout as an attempt to provide support to constantly worsening the economy and depleting foreign exchange reserves. Mr. Khan traveled to different friendly countries to seek financial help, which he received by the way, but still, the country’s financial think-tank had no option but to go to IMF as well.
After a lot of negotiation and various sessions held between Pakistani government representatives and IMF officials, a staff-level agreement was reached on the 12th of May. Executive Board of International Monetary Fund (IMF) finally approved the $6 billion loan facility to Pakistan on 3rd July with the first disbursement of $1 Billion and remaining amount over the course of the loan program that extends to nearly 39 months.
IMF loan program is not new to Pakistan, as the country has had 20 similar bailout packages previously in different tenures. However, experts believe that conditions for the current package are stricter than all previous packages. As one of its main conditions, Pakistan has already let its currency, Rupee, to fall in comparison with the US Dollar in order to allow country’s industries to become more competitive and correct the unsustainable current account deficit.
Another major condition of this package is related to widening the tax net. At present, merely 1% of the country’s population pay direct taxes and the government seem to have highly ambitious targets to multiply the number in the near future. As part of the same ambition, the finance ministry announced an amnesty scheme to allow citizens to declare their undeclared or hidden assets in exchange for just a small percentage of tax. According to Mr. Hafeez Sheikh, country’s finance advisor, nearly 70 Billion PKR ($0.44 B) tax has been collected from this amnesty scheme that expired on 3rd July.
However, Pakistan’s economic problems seem far from ending, as the IMF believes the country may need up to $38 Billion in upcoming years to bring its economy on track and ensure long-term sustainability. On the other hand, attempts to increase tax net and let the Rupee devalue have ignited anger among opposition parties and some segments of the public as inflation rates have gone considerably higher. Country’s officials are hopeful that the IMF package would improve the trust of investors and other countries and more money may pour in as a result of this trust.