Prime Minister Imran Khan was keen to get the IMF’s modified extended fund facility (EFF). The approval by the Fund was preceded by some tough decisions taken by the PTI government, including a steep rise in electricity bills, accepting the principle of atomicity in power tariff rise, imposition of Rs140 billion taxes and an agreement to grant unprecedented autonomy to the State Bank of Pakistan. The PM was regularly kept informed about the conditionalities that were being imposed by the IMF, that were officially announced by the Fund on Thursday. There are signals now that Mr Khan intends to renegotiate the terms of the agreement.
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.
A whopping Rs 1.27 trillion hike in taxes committed with IMF can only be realized by increasing the rates of income and sales taxes, withdrawing exemptions, raising electricity rates that would put an additional burden of Rs 884 billion on the consumers, and increasing the petroleum levy to yield about Rs 510 billion instead of budgeted target of Rs 450 bllion. 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 measures would no doubt help contain a highly unsustainable public debt at current levels but would have an adverse impact on the common man’s livelihood while a constricted growth will add to the number of the unemployed. The PM is in a quandary. If he goes ahead with implementing the IMF’s programme, his electoral fortune would be under serious threat while the benefits accruing from stabilizing the economy will be reaped by the next government.
