- Pakistan’s peers have achieved more than double the average GDP per capita.
- The global lender is assessing Pakistan’s performance over the past 10 years.
- The Fund recommends strengthening ownership as the main lesson learned.
The International Monetary Fund underscored the “urgent need” for political reforms in Pakistan in its latest staff report, saying the country has failed to match the living standards of its peers in the region. News reported on Saturday.
“Pakistan has been lagging behind its peers in recent decades in terms of per capita income, competitiveness and export performance. From 2000 to 2022, Pakistan’s per capita GDP grew at an average annual rate of just 1.9%,” the report said. .
According to the report, Pakistani peers achieved more than double the rate mentioned above.
“Bangladesh averaged 4.5% growth, India 4.9%, Vietnam 5%, and China grew by about 7.5%,” the Washington-based bank said.
The IMF reviewed the last ten years of its programs in Pakistan, recognized that fundamental challenges remained, and recommended strengthening ownership as a key lesson learned.
The International Monetary Fund evaluated Pakistan’s performance over the past decade. During this period, Pakistan had three senior credit tranche arrangements and one use of the Rapid Financing Instrument under the General Resources Account.
These programs have generally been launched against a backdrop of weak external conditions or unprecedented external shocks, such as the COVID-19 pandemic and floods, as well as long-standing financial and external vulnerabilities, coupled with structural challenges. Although early progress was often achieved due to strong policies under fund-supported programmes, this progress was not sustained, leading to the re-emergence of imbalances and the need for subsequent programmes.
To be effective, program terms must evolve to accommodate emerging risks and policy issues. For the new Extended Fund, this is particularly important. During the 2013 Extended Fund Facility, reform efforts weakened, resulting in the need for 13 waivers. Although external spending and borrowing were initially contained, large future borrowing commitments paved the way for the re-emergence of imbalances.
It has emerged that under the IMF’s $7 billion Extended Fund Programme, Pakistan has accepted 22 conditions, including a written commitment to phase out incentives for special economic zones by 2035.
The government will prepare a phased plan by June 2025 to cancel all current special economic zone incentives.
In addition, Pakistan agreed to revise gas tariffs by the end of December 2024 and impose a 5% federal excise duty on fertilizers and pesticides in the 2025-26 budget.
To enhance the effectiveness of the anti-corruption framework, the government will amend the Civil Servants Law by February 2025.
It will ensure that asset declarations of high-level government officials (including assets owned by them or their family members) are filed digitally and made available to the public through the Federal Board of Revenue (FBR), with a robust risk-based verification framework by a single authority.
The government also aims to achieve net zero circular debt flow for FY2025 through timely tariff hikes, targeted subsidies, and cost-cutting reforms in the energy sector.
“Pakistan’s ability to repay is at significant risk and remains critically dependent on timely policy implementation and external financing,” the IMF staff report said.
While commending Pakistan’s implementation of its policies under the 2023-24 SBA, the IMF stressed the need for sustained efforts to ensure macroeconomic stability and sustainable growth.
The SBA has achieved its short-term goals, but structural challenges remain. To break the cycle of economic boom and bust, the IMF stressed the need for Pakistan to radically transform economic policy-making, reduce the role of the state in the economy, strengthen the business environment, attract private investment, and invest in human capital while protecting most population groups. exhibition.
The Pakistani authorities are aware of these challenges and are committed to strengthening the country’s resilience and economic prospects. Strong ownership of sound macroeconomic policies and decisive implementation of reform is essential. Fiscal efforts in the FY2025 budget and ambitious reforms to expand the tax base are critical to enhancing fiscal sustainability.
The adoption of the fiscal year 2025 budget represents an important first step, with high-quality revenue measures targeting the general sales tax, personal income tax, and corporate income tax for exporters and developers. These steps aim to enhance fairness, transparency and revenue collection.
The IMF confirmed that the federal government has taken steps to boost revenues by Rs1,723 billion, including boosting direct taxes by Rs240 billion, raising personal income and corporate tax rates, and improving goods and services tax collection by Rs286 billion. The government also improved administration to bring in 250 billion rupees, expanded the Federal Reserve to generate 413 billion rupees, and rationalized tariffs by 65 billion rupees.
Pakistan’s low tax-to-GDP ratio necessitates sustained efforts to expand the tax base through fair measures. Near-term reforms include taxing provincial agricultural income and eliminating concessions, exemptions and concessions, along with revenue management reforms.
These measures will support fiscal consolidation, make room for essential investments in human capital, and maintain the downward trajectory of public debt.
Provinces must also implement agricultural income tax reforms and support revenue mobilization, including through property taxes, to achieve primary surplus goals.
Reforms in public investment management, liquidity management, and debt reduction remain critical. Monetary policy must remain tight and data-driven to control inflation and maintain exchange rate flexibility. The Central Bank of Pakistan’s commitment to transparency in foreign exchange operations is essential to rebuilding reserves.
Attracting high-quality investments will require adherence to current account rules, including the repatriation of dividends and profits.