Pakistan's IMF Program: USD 100 Billion Financing Needs

Islamabad, Jan 30 (PTI) A minister said Pakistan cannot afford the risk of exiting the International Monetary Fund (IMF) programme with USD 100 billion in external financing requirements in the short to medium term.

"We have a narrow path from short to medium term due to USD 100 billion gross external financing needs and cannot be adventurous," Minister of State for Finance Ali Pervaiz Malik said while speaking at a seminar organised by the Pakistan Business Council (PBC), the representative body of local and foreign manufacturers.

The statement underscores the country's dependency on foreign creditors which has limited its options and hindered its desire for rapid economic growth due to weakened economic fundamentals, The Express Tribune reported.

This comes a day after the IMF's Resident Representative, Mahir Binici, advised Pakistan to remain on course and exercise patience.

An IMF mission is expected to visit Islamabad next month to hold the first formal review talks under the USD 7 billion bailout package.

The review will determine the government's seriousness in implementing structural reforms. So far, it has not been able to privatise even one entity, and there is no tangible progress on implementing new income tax rates for the agriculture sector while traders have also remained largely untouched.

The USD 100 billion external debt repayments from the fiscal year 2024-25 to 2026-27 exclude payments on liabilities recorded on the central bank's balance sheet and financing requirements for the current account deficit.

The government lacks a viable plan to repay these loans other than requesting lenders each year to defer payments. For this fiscal year alone, external debt repayments amount to USD 18.8 billion, excluding repayments of central bank liabilities.

Pakistan has secured USD 12.7 billion in cash deposits to avoid default and heavily relies on four lending nations for annual debt rollovers.

Kuwait has previously provided a USD 700 million loan. The rollovers Pakistan seeks to meet its cumulative USD 100 billion repayments in four years primarily come from Saudi Arabia (USD 5 billion), China (USD 4 billion), the United Arab Emirates (UAE) (USD 3 billion), and Kuwait (USD 700 million).

While the economy is experiencing a phase of relative stability, there is increasing pressure on the government to allow for growth.

Malik said Pakistan cannot achieve sustainable growth without addressing fiscal imbalances and low investment and savings ratios.

The country's investment ratio in the last fiscal year dropped to a half-century low despite the efforts of the government and Special Investment Facilitation Council (SIFC), which is a military-led body, to attract foreign direct investment.

Malik admitted that Pakistan lags behind its IMF commitments to meet tax targets. The Federal Board of Revenue (FBR) has already sustained a Rs386 billion tax shortfall, which is expected to widen further by the end of this month.

The government had agreed with the IMF to collect nearly Rs13 trillion in taxes during the current fiscal year. However, it has not taken decisive action against traders, and its Tajir Dost Scheme to collect Rs50 billion in additional taxes has failed spectacularly.

"In its rush for revenues, the federal government has created many anomalies, which have caused problems for the people," said Malik.

The government has access to data on high-net-worth individuals and traders but lacks the political courage to act, said Arif Saeed, a leading businessman and Chairman of the Board of Pakistan Revenue Automation Limited, the IT arm of the FBR.

Shabbir Dewan, Chairman of the PBC, said the government should begin reducing taxes in the next budget, starting with exempting exporters from the 10 per cent super tax.

Business leaders also expressed concerns that the FBR is harassing individuals who have voluntarily entered the tax net.

Due to flawed taxation policies, the salaried class has been suffering significantly, yet the government is unwilling to provide relief.

Finance Minister Muhammad Aurangzeb said on Tuesday the government would simplify tax returns for salaried individuals but indicated that any relief would not be possible until other sectors contribute their fair share of taxes.