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The International Monetary Fund (IMF) has released the country report for Pakistan laying bare flawed policies adopted by the PTI government, which, the Fund said, eroded forex reserves of the country and contributed to the depreciation of the rupee. The report also reveals what the current government under the PML-N has promised to the world lending body.
The report does not name any political party, but refers to increased gross domestic growth (GDP) which the PTI has said was the result of its policies. Pakistan recorded a 6% GDP in the fiscal year 2021-22 (FY22) — ended less than three months after Imran Khan was ousted by the parliament in early April.
Experts have already said that the increase in the GDP was caused by unsustainable growth which led to economic overheating. The IMF report also comes up with the same conclusion.
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The Fund said that increased GDP in FY22 was “fueled by loose fiscal policy and a delayed monetary response to inflationary pressures.”
“These combined with the international food and fuel price shocks led to a marked deterioration of the external position with an unsustainable current account deficit, a significant decline in reserves, and a marked depreciation of the rupee.”
According to the IMF, the PTI government failed to respond to the international commodity price hike and its policies resulted in the depreciation of the rupee and erosion of forex reserves.
“Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fueled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers,” the IMF said.
The report said that the PTI government went back on its promises shortly after receiving around $1 billion from the IMF. “Program implementation deteriorated shortly after the completion of the sixth review. Amid a tense politcal landscape, programmed fiscal adjustment was undone and several key EFF commitments were resverd.”
Promises by current govt
The report reveals that the current government has assured the Fund that it will reimpose general sales tax (GST) on petroleum products and will not offer any subsidy on fuel.
The government will not announce any tax amnesty without prior approval from Parliament.
It will also streamline the sales tax on services across the country. At the moment different provincial territories levy sales tax on services at different rates.
The Fund took note of the measures introduced by the PML-N government to put the IMF program back on track, including a budget based on basic surplus, an increase in the interest rate, and the removal of fuel subsidies.
The Fund has urged the government to maintain a market-based exchange rate, increase tax revenue and improve forex reserves.
The IMF also said that even after policy reforms the loan programs face unusual risks.
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