Pakistan’s Economic Challenges: Navigating IMF Mandates and Future Policies

by Yasmeen Aftab Ali    18 November 2023   Baghi
Pakistan's Economic Challenges: Navigating IMF Mandates and Future Policies | Baaghi TV

The International Monetary Fund (IMF) currently expresses satisfaction with Pakistan’s progress in achieving the set economic goals. However, this accomplishment comes at a price, as the nation implemented measures such as increased taxes on commodities, leading to a surge in inflation. The tax hike on electricity bills, coupled with rising unit costs, has had a detrimental impact.

One significant factor contributing to Pakistan’s economic strain is the closure or limited functioning of industries. This issue arises not only from the aforementioned tax increases but also from the closure of Letter of Credits (LCs) due to diminishing dollar reserves. As of September 2023, reserves stood at $1316.80 million USD, dropping to $12600 million by October 2023. Consequently, consumer purchasing power has dwindled, limiting spending to essential needs.

The upcoming IMF review scheduled for March 2024 highlights three areas for potential increased taxation: retail products (potentially causing more inflation), real estate, and agricultural products. These measures are crucial for meeting IMF targets but pose challenges to an economy already grappling with adverse effects.

Examining the monetary and fiscal policies of the Pakistani government reveals a regressive stance. The Monetary Policy, centered around the State Bank’s injection of funds into the economy, and the Fiscal Policy, encompassing taxation and spending, have both taken a toll. In response to the economic situation, the caretaker government recently imposed a one-time 40% tax on bank profits derived from foreign exchange transactions over the past two years. This decision follows the revelation of a Rs 110 billion profit in 2021-2022 from speculative rupee-dollar trading.


Pakistani economist Haroon Sharif, a former Minister of State and Chairman of the Board of Investment, raised concerns in a recent tweet. He emphasized that Pakistan faces the highest interest rate in Asia and is grappling with a financing crisis, lacking affordable long-term financing for essential sectors such as new projects, housing, infrastructure, small and medium enterprises (SMEs), and exports.



Pakistan's Economic Challenges: Navigating IMF Mandates and Future Policies | Baaghi TV

In the current economic downturn, additional measures risk exacerbating the situation, acting as a clampdown. Further closures and a lack of employment opportunities will not only deepen the economic depression but also hinder tax collection efforts. As the nation stands at a critical juncture, policymakers must carefully navigate between meeting IMF requirements and safeguarding the well-being of the economy and its citizens.

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