The International Monetary Fund on Thursday slammed the Pakistani government’s new annual budget proposal, saying it failed to implement a fairer tax system in the draft.
The harsh criticism from the IMF’s representative in Pakistan, Esther Perez Ruiz, has raised fresh concerns about the success of months-long talks between the cash-strapped Islamic State and lenders over a stalled bailout package.
However, Perez-Ruiz also said the IMF offered to “work with the government to refine its budget strategy”.
The Islamabad government last week presented its budget for the next fiscal year starting July 1 in the National Assembly, or the lower house of parliament. The draft also introduces a new tax amnesty program and skips some expected taxes.
The proposal is likely Prime Minister Shahbaz Sharif’s attempt to stave off disinflation protests and bring relief to the poorest.
However, it also envisions wage increases for government employees by as much as 35%, drawing criticism as experts question how the government will raise resources for development projects and wages as the fiscal deficit widens to alarming levels.
Lawmakers are expected to debate and vote on the budget later this month.
Perez Ruiz said the Pakistani government was missing “opportunities to broaden the tax base in a more progressive manner, with a long list of new tax payments further reducing the fairness of the tax system and undermining the resources needed to provide more support to the vulnerable.” . “People.
Pakistan has agreed with the International Monetary Fund to revive the $6 billion bailout package originally signed by former Prime Minister Imran Khan in 2019. In April 2022, his government was ousted in a vote of no confidence in parliament and replaced by Sharif’s cabinet.
Perez Ruiz also said the new tax amnesty announced in the budget proposal goes against the IMF’s planned “conditions and governance agenda and sets a damaging precedent”.
Pakistan is just two weeks away from meeting the IMF’s conditions to qualify for a much-needed $1.1 billion payment that has been on hold since November.
“Pakistan is still negotiating with the IMF,” Finance Minister Ishakhdar said after Peres Ruiz’s statement.
Pakistan is grappling with one of its worst economic crises, with food costs rising and annual inflation approaching 30%, compared with weekly inflation of nearly 45% last month. It is also battling the aftermath of last summer’s devastating floods, which killed more than 1,700 people and caused a staggering $30 billion in damages.
Also on Thursday, the government in southern Sindh, the hardest-hit province by floods, prepared for Cyclone Bipajoy after it made landfall in neighboring India and was expected to reach Pakistan within hours. So far, 73,000 people have been evacuated from dangerous areas in the cyclone’s path, the government said.