LAHORE – The International Monetary Fund has issued a stern warning to Pakistan to take measures to cut its spiralling budget deficit, according to a senior Pakistani government official, the Wall Street Journal reported.
In an official letter to the government, the IMF warned that the state of the nation’s economy was far worse than previously realised and urged immediate fiscal belt-tightening measures, said the official, who has seen the missive, the paper said. A spokesman for the IMF declined to comment on the letter.
Pakistan’s budget deficit is already six percent, above a four percent target, due to failure to bring in a general sales tax and curb expenditures, which are promises made by Pakistan to the IMF in return for lending. The budget deficit could go up to eight percent this financial year if the government borrowing continued at the same pace, according to the Finance Ministry.
Pakistan also needs to do more to strengthen the independence of its central bank, the IMF said. Pakistan’s ratio of tax to gross domestic product is below 10 percent and many of the nation’s elite pay no tax at all. Only two million Pakistanis out of a population of 180 million pay tax.
Analysts said further delay in the implementation on tax reform could lead to an even larger deficit.
More delays “will have disastrous consequences with the fiscal situation already in dire straits”, warns Sakib Sherani, a former principal adviser to Pakistan’s Finance Ministry. “The future for reform under the incumbent administration looks bleak.” “The leaders are still not willing to take critical measures hoping that Washington would bail the country out,” the senior government official said.
The IMF said Pakistan needs at least eight percent to 10 percent growth just to absorb the annual increase in the labour force and reduce poverty. “It is extremely important for Pakistan to achieve higher growth to fight poverty and provide jobs for some two million people entering the job market every year,” said Paul Ross, the IMF representative in Pakistan.
IMF tells Pakistan to curtail deficit
