After facing the six-month-long storm raised by the PDM, Prime Minister Imran Khan will now have to contend with the grave economic challenges ahead. In January the PM had promised 2021 to be a year of economic growth, adding that the country was already moving in the right direction with increased industrial output and exports having a bonanza. Had the economic performance been really satisfactory there was no need to go back to the IMF programme. The way the government moved hastily to secure $500 million IMF tranche indicates that the rosy picture painted by the PM was aimed at keeping high the morale of his followers.
The economy in fact passed through a brief honeymoon period which is now over. The positive factors being advertised were the outcome of a year-long freedom from the IMF yoke and the provision of a $1.4 billion injection from the Fund to support government finances during the pandemic. After rejoining the IMF programme the government would not be able to maintain the inducements like low interest rates, facilities like subsidized credit, and subsidies on gas and power to the industrial sector.
The business community is already wary about the consequences of the government’s decisions. The withdrawal of corporate tax exemptions has elicited an immediate negative response from the FPCCI chief who doubts if amendments to tax rules will help increase revenue collection. According to him, sectors like NBFI and modaraba which facilitate small and medium enterprises, an area where the commercial banking sector remain cautious, would suffer the most.
The biggest sufferer would be the common man who is already reeling under the impact of ever increasing power and gas tariffs. Now there would be no need to go to Nepra every time for getting sanction for hike in power rates. The Presidential Ordinance makes tariff increases of about Rs 5.36 per unit over the next 27 months automatic in one go.
The withdrawal of corporate tax exemptions would add to the cost of production which would be transferred to the already overburdened consumers. It will also impact exports, which would find it difficult to compete with other countries.
