In an interview on the sidelines of the Munich Security Conference on Friday, the IMF chief said;
“My heart goes to the people of Pakistan. They have been devastated by the floods that affected one-third of the population of the country. What we are asking for are steps Pakistan needs to take to be able to function as a country and not to get into a dangerous place where its debt needs to be restructured.”
The director further stressed that Pakistan must ensure that its high earners pay taxes and only the poor should get the subsidies if it wants to function as a country. She highlighted that the IMF wants to focus on two major things for the economic bailout for Pakistan. The first one is the tax revenues, those who are earning well in the private or public sector need to contribute to the country’s economy. Secondly, there is a need for a fairer distribution of subsidies and IMF wants the poor people of Pakistan to be protected.
She was of the view that;
“It shouldn’t be that the wealthy benefit from subsidies. It should be the poor [who] benefit from them.”
IMF’s economic bailout
Earlier IMF’s delegation visited Pakistan for the ninth review of the $1.12 billion economic bailout. However, after 10 days of talks, the team departed from Pakistan without any agreement. Pakistan is in desperate need of funds as the country battles with a wrenching economic crisis.
Pakistan received a $6 billion IMF bailout in 2019, which was topped up with another $1 billion last year to help the country following devastating floods. However, the IMF then suspended disbursements in November 2022 due to Pakistan’s failure to make more progress on fiscal consolidation.
Moreover, the country’s foreign exchange reserves also continue to decline rapidly. There are almost $3 billion in reserves are left which are barely enough to cover three weeks of controlled imports. A resumption of the IMF program would also unlock other avenues of external funding for Pakistan.
The Fund said in a statement that both sides will continue to have virtual discussions to finalize the implementation details and policies, including tax measures for the bailout program. Furthermore, IMF has set certain conditions for Pakistan to unlock the stalled $1.12 billion program.
Additionally, Finance Minister Ishaq Dar presented the mini-budget in the National Assembly last week. The bill suggested raising an additional Rs170 billion tax in the next four and a half months to meet the last prior actions agreed upon with the IMF.
The Fund has given a deadline of March 1 to Pakistan for implementing all these measures to unlock the $1.12 billion disbursements.