A report released by the International Monetary Fund (IMF) presents a bleak picture vis-à-vis the budget for the next financial year as it will add significantly to the burden of the common man, who is, otherwise, expecting relief in view of renewed inflationary trends triggered by recent governmental actions.
With Rs 430 billion in new budgetary measures and an 18 per cent higher petroleum levy, the IMF has targeted Pakistan’s federal revenues at Rs 17.145 trillion for 2026-27, along with a series of administrative and policy measures committed by the government for the federal and provincial budgets to be passed by Parliament. The report showed that Pakistan had to commit and deliver three major prior actions to make up for slippages on programme benchmarks before the IMF’s executive board finally approved the disbursement of $1.3 billion under both facilities. These included Rs 136bn lower grants to the provinces, Rs 322bn in recoveries following favourable court decisions relating to super tax and full pass-on of fuel prices after the government’s initial hesitation following the US-Iran war.
People of Pakistan witnessed unprecedented increase in the prices of petroleum products, which have almost doubled since the Gulf war, resulting in a vicious cycle of price-hike of goods and services. The prices were repeatedly adjusted upwards without any justification as neighbouring India hiked the prices for the first time (after the war) by just 3% on Thursday. In the case of Pakistan, taxes on POL products are imposed to make amends for the shortfall in tax collections. The increase in the so-called petroleum development levy is already making lives of the people miserable but the Government has committed to jack it up further during the next financial year. This could mean that the prices of petroleum products will not revert back even if prices in the international market fall — because of uncalled-for taxation. Another commitment pertains to timely tariff adjustments according to their biannual and annual schedules, respectively, in the gas and power sectors, to ensure full cost recovery in the wake of the regional security crisis and supply disruptions. As a result, tariff subsidies for low-income categories would be provided through BISP, based on the national socioeconomic registry (NSER) surveys, rather than the current billing mechanism. This effectively means further increase in gas and electricity tariffs, which are already back-breaking for the common man and people are demanding a reduction in their prices. Similarly, commitments made with regard to sugar policy, auto policy and gradual foreign exchange regime liberalization are also expected to contribute significantly to inflationary trends during the next financial year.
Ironically, the Government has also committed to reducing government intervention in the wheat and sugar markets on the pretext to remove distortions and support private investment, productivity and efficiency but the net result will be further hike in the prices of these essential items. The IMF has also pointed out that the consolidation progress so far has relied primarily on increasing revenue from the formal sector, urging the authorities concerned to scale up efforts to broaden the tax base in the under-taxed sectors by strengthening revenue administration, which would also create space to address distortions in the existing tax policy design and support long-term growth. This policy recommendation, if implemented in letter and in spirit, can help reduce the burden of taxes on the already taxed and over-taxed individuals and sectors to non-taxpayers and under-taxed sectors. However, we have seen in the past that the Government introduced half-hearted initiatives to bring some segments of the society in the tax net, which were abandoned later due to resistance by the powerful groups and lobbies and resultantly the revenue projected for collection under those initiatives finally had to be paid by the ordinary taxpayer. There are also discomforting reports that despite its avowed commitment to compensate employees and pensioners for the inflation during the year, the Government is contemplating to freeze salaries and pensions leaving millions of families at the mercy of circumstances. In a nutshell, the budget philosophy developed jointly by the Government and the IMF is clearly pro-elite and envisages sacrifices from the ordinary citizens, which is not a viable course for an elected Government.
