IMF, Inflation and Imran Khan’s claims: Shafaqna Special

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Pakistan has made a commitment with the International Monetary Fund (IMF) to increase FBR taxes by a massive Rs1.272 trillion (almost 2.8 per cent of GDP) in the coming budget and jack up electricity rates by almost Rs4.97 per unit in the remaining three months of the current fiscal year.

According to documents released by the IMF after approval by its executive board of directors of the modified extended fund facility (EFF), the government has also given an undertaking to continue making electricity tariff adjustments next year on monthly, quarterly and annual basis through “automaticity” of regulator Nepra’s amended powers. The documents also suggest that the government would continue increasing petroleum levy on oil products to the maximum level (Rs30 per litre) this year and next year to collect about Rs510 billion this year instead of budgeted target of Rs450bn.The government will also have to slap new taxes of around Rs600 billion in June. Rss500bn will be collected through raised GST. There would be no tax exemption or tax amnesty in future. Quite disquieting announcements for the man in the street, the trading community and the potential investors!

The agreement was brokered at a time when PTI lawmakers had their eyes fixed on the next elections rather than soon after winning the elections as was done by the PML(N) in 2013. The PTI leaders are keen to have something big to show as their government’s performance. Even the PM has directed his spokespersons to concentrate on highlighting their administration’s achievements. The agreement with IMF however conveys a highly negative message to the electorate.

The government, on one hand, claims to be aware of the miseries of the poor. On the other, it is burdening the people with unbearable taxes. Moreover, the petroleum levy on oil products that will be taken to the maximum level might become the straw that will break the back of the camel. The public should brace itself for unprecedented food inflation, job losses, inadequate social services and pay cuts. A shrinkage in incomes and purchasing power might contract the economy even further; the government is taking fiscal decisions that will have lasting ramifications but is only looking at short-term gains. This is not the best way to approach economic policy.
Our Prime Minister (PM) often stresses the importance of wealth creation. However, is it possible to create wealth if the poor are left with nothing at the end of the month for saving or investing or buying assets? The economic minds of the government must explain why quick fixes to overcome revenue shortfall are being prioritised over the higher principle of creating a robust economy with jobs and wealth being created.