Pakistan Considering Budget Cuts To Obtain Approval For IMF Financing | Invest News


ISLAMABAD (Reuters) – Pakistan to end most sales tax exemptions so that all sectors pay a flat 17% amount as part of a tightening package aimed at securing approval of a $ 1 billion tranche of IMF financing, officials said on Friday.

In addition to removing sales tax exemptions worth around 300 billion rupees ($ 1.70 billion) per year, officials said an additional budget next week would also reduce development spending. . The measures will add further pressure on consumers already squeezed by soaring inflation and a declining currency.

The IMF agreed last month to revive a stalled $ 6 billion financing package, but demanded further fiscal tightening from Pakistan before the next $ 1 billion tranche can be approved.

Government financial adviser Shaukat Tarin said the IMF has required the sales tax to become a general sales tax of 17%, which is currently the highest level but only applies to certain goods and services. However, he said the government would work to provide relief to low-income workers and others affected by the tax.

“The IMF doesn’t say you don’t give relief to people, but it says don’t skew the tax rate,” he told reporters.

Soaring food and energy prices have put Prime Minister Imran Khan under increasing pressure in recent months as household bills have sparked growing anger among the middle classes, which had provided the main base of support. of his government.

Pakistan had been in talks with the IMF for several months to ask for an easing of the terms and conditions of a bailout agreed more than two years ago to consolidate its fragile public finances. Completion of the IMF review, pending since the start of the year, would free up 750 million IMF special drawing rights, or about $ 1 billion, bringing total disbursements to about $ 3 billion. . Pakistan entered the $ 6 billion, 39-month funding program with the IMF in July 2019, but funding stalled earlier this year due to issues with required reforms.

The Pakistani economy has come under severe pressure with a historic drop in the rupee, inflation reaching 11.5% in November, a widening current account deficit and a decline in foreign exchange reserves.

The central bank raised its benchmark interest rate by 150 basis points last month to 8.75% to counter inflationary pressures and preserve stability with growth. ($ 1 = 176.5000 Pakistani rupees)

(Reporting by Asif Shahzad; Editing by Susan Fenton)

Copyright 2021 Thomson Reuters.


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