Finance czar hopeful of reaching deal with IMF this month

ISLAMABAD: Finance Minister Muhammad Aurangzeb on Thursday said Pakistan would reach a reach a staff-level-agreement with the International Monetary Fund (IMF) this month as the talks between Islamabad and the global lender on the new bailout programme progressed "positively". 

The government is looking to clinch the IMF agreement on a bailout of more than $6 billion after addressing all of the lender's requirements in its annual budget.

"The talks with the IMF are progressing positively," the finance czar said while briefing the National Assembly's Standing Committee on Finance.

Aurangzeb informed the body that no country could run on a 9% tax-to-gross domestic product (GDP) ratio and pledged to raise the ratio to 13%.

"The Fund requires taxation on the actual income which is fair," the minister said.

The federal government presented the tax-loaded Rs18.877 trillion budget for the fiscal year 2024-25 (FY25) last month, aimed at shoring up public revenue and satisfying the IMF, which has repeatedly demanded improved tax collection.

The budget aims to raise Rs13 trillion by next July, a roughly 40% increase from the current financial year, to bring down a ruinous debt burden that has caused 57% of government revenue to be swallowed by interest payments.

The tax rises mostly fall on salaried workers, who comprise a relatively small part of Pakistan’s mostly informal economy, as well as some retail and export businesses. The budget also threatened punitive measures for tax avoiders, including restrictions on mobile phones, gas and electricity access and the ability to fly abroad.

On Sunday, the finance minister warned that Pakistan won't be able to break lose from IMF bailouts if it fails to boost tax revenue.

The minister in today's briefing expressed hope to bring all the sectors into the tax net, saying that everyone will be made a filer as per Prime Minister Shehbaz Sharif's directives.

Taxes had to be jacked up because the tax net was not wide, he added.

He further stated that there was a need to reduce human interference in the Federal Board of Revenue (FBR) system, adding that the government will work on increasing people's trust in the FBR.

Aurangzeb went on to say that loan and interest repayment had a major share in the government's expenses.

He further stated that five federal ministries would be abolished, as announced by PM Shehbaz Sharif following the budget 2024-25 presentation last month and added that the decision in this regard will be made by July 30.

While addressing the standing committee, the minister said all the economic indicators remained positive during the last fiscal year, while the foreign exchange reserves remained well above $9 billion.

Moreover, the inflation rate saw a gradual decline during the last fiscal year, he added.

The finance czar stated that the Pakistani currency destabilised due to a delay in the IMF programme in 2023.

Military service structure requires amendments

FinMin Aurangzeb further stated that some changes were being made in the service structure of the military, saying that the military's entire service structure needed amendments.

He said that a system of contributory pension for the armed forces of Pakistan will be launched.

He said that the system has been notified for the civil servicemen from July 1, 2024; however, new pension scheme for the military servicemen will be applicable from July 1, 2025, he added.

"Those joining service from July 1 will receive their pensions under the new scheme," he added.

The Economic Coordination Committee (ECC) of the Cabinet last month approved major changes to the federal government’s pension system.

However, the changes to the pension scheme for the armed forces follow with effect from the next fiscal year 2025-26.

Pakistan has set a tax revenue target of 13 trillion rupees ($47 billion) for the fiscal year that began on July 1, a near-40% jump from the prior year, and a sharp drop in its fiscal deficit to 5.9% of gross domestic product from 7.4% the previous year.

It aims to lower its fiscal deficit to 5.9% of gross domestic product from 7.4% last year.

While the budget may win approval from the IMF, high taxes on a struggling economy could fuel public anger, according to analysts.