The government on Tuesday while bowing to another demand of the International Monetary Fund has decided to increase sales tax.
In this regard, the Ministry of Finance officials have sent a draft Medium-Term Economic Framework to the international lender. The IMF will respond to the Ministry of Finance again by today.
According to sources, the IMF will review the Memorandum of Economic and Financial Policies draft sent by the Ministry of Finance and send it back. The government has taken a principled decision to increase the sales tax in various categories to appease the IMF.
The finance ministry said that there is a strong possibility that important progress will be made by the IMF during this week, and the government will soon decide on bringing an ordinance for the Rs170 billion mini-budget.
The federal cabinet will also deliberate on the nature of the mini-budget and the ordinance.
Earlier in the day, Pakistan and the International Monetary Fund resumed their talks over release of ninth tranche of the Extended Fund Facility. The federal government hopes that these virtual discussions will lead to a deal that eases up ever-increasing pressure on the country’s ailing economy.
Finance Secretary Hamed Yaqoob Sheikh said the “duration (of the talks) cannot be confirmed but we intend to wrap these up at the soonest”. Islamabad held 10 days of intensive talks with an IMF delegation – from Jan 31 to Feb 9 – but could not reach a deal.
The IMF, however, said in an earlier statement that both sides had agreed to stay engaged and “virtual discussions will continue in the coming days to finalise the implementation details” of the policies discussed in Islamabad.
Talks centre around reaching an agreement on a reforms agenda under the country’s $6.5 bailout programme, which it entered in 2019.
An agreement on the ninth review of the programme would release over $1.1 billion.
After concluding the most recent round of talks, the IMF suggested several measures, including the imposition of new taxes.
Although Pakistan received pledges of more than $9 billion from international institutions to help with flood recovery, the funds will only be given for specific projects and not as cash.
Finance Minister Ishaq Dar is preparing to introduce new taxes and reduce subsidies on electricity and gas to fulfill the terms of the agreement. Pakistan’s inflation rate is likely to jump from 26% to 40% after the new taxes are imposed, but further delay in securing the IMF bailout would make life even more challenging for the common people.
