The International Monetary Fund (IMF) has agreed to provide Pakistan with a $7 billion loan to bolster its struggling economy. Islamabad has pledged that this will be the last time it relies on financial assistance from the Washington-based lender. This agreement, Pakistan’s 24th IMF payout since 1958, comes in exchange for unpopular reforms aimed at widening the country’s chronically low tax base.
Pakistan faced a near-default crisis last year as its economy shrank due to political turmoil, the devastating 2022 monsoon floods, decades of mismanagement, and a global economic downturn. Last-minute loans from friendly nations and an IMF rescue package averted a collapse, but the country’s finances remain dire, characterized by high inflation and staggering public debts. Prime Minister Shehbaz Sharif declared that this IMF program should be the final one, emphasizing the need to tax those who currently evade it.
Islamabad engaged in months of negotiations with IMF officials to secure the new loan, which will be disbursed over three years subject to approval by the IMF’s Executive Board. The loan comes with conditions that include substantial reforms, such as increasing household energy bills to address the perpetually crisis-stricken energy sector and increasing meager tax revenue. In a nation with over 240 million people and a predominantly informal job market, only 5.2 million individuals filed income tax returns in 2022.
During the 2024-25 fiscal year, which began in July, the government aims to raise nearly $46 billion in taxes, representing a 40% increase from the previous year. The tax authority has implemented unconventional methods, such as blocking 210,000 SIM cards belonging to mobile users who have not filed tax returns, in an effort to expand the tax base. According to Nathan Porter, the IMF Pakistan Mission Chief, the agreement will support revenue collection through “simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system.”
Islamabad also aims to reduce its fiscal deficit by 1.5% to 5.9% in the coming year, adhering to another key IMF demand. The IMF asserts that the loan and its associated conditions will enable Pakistan to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth.” However, Pakistan’s public debt remains substantial at $242 billion, and servicing this debt will consume half of the government’s income in 2024, according to the IMF.
Analysts have criticized Islamabad’s measures as superficial reforms aimed at appeasing the IMF without addressing underlying problems. Ali Hasanain, associate professor of economics at the Lahore University of Management Sciences, commented that “It is hard to not see old patterns in this new IMF deal. The IMF has issued a loan similar in size and conditions as the one agreed to five years ago, and five years before that.” He questioned whether authorities would seize this opportunity to undertake fundamental reforms in how the country is run, adding, “You would be well-advised not to hold your breath.”
Prime Minister Sharif assumed office in February following elections marred by allegations of rigging. His shaky coalition government has faced challenges in implementing a strict economic agenda, potentially jeopardizing their popularity. The introduction of tax and bill hikes in last month’s budget, prepared under IMF oversight, has already sparked scattered protests, with more demonstrations planned in the coming weeks. The World Bank warned in April that while around 40% of the population already lives below the poverty line, an additional 10 million Pakistanis could fall into poverty. Pakistan’s previous $3 billion loan from the IMF in 2023 proved a lifeline but was accompanied by unpopular austerity measures, including the elimination of subsidies that cushioned consumer costs.
