IMF and the budget

• Are we following the Egyptian model?

By the time the budget was passed on Friday, the government had already frontloaded all the major IMF demands. Increase in energy prices approved by the relevant forums would become legally effective on July 1; the exchange rate stands massively depreciated; the interest rate has been hiked to 12.25 per cent; the subsidy to zero-rated industries has been withdrawn; the 4 per cent growth rate projected by the NEC has been brought down to 2.4 per cent as dictated and the budget is now being sent to the IMF for approval. Considering the signing of an agreement with the IMF a formality, the finance ministry has added the Rs357 billion loan from the IMF in its budget proposals.

But will the government manage to raise the finances to the level being visualised? In an environment of economic slowdown where large scale manufacture has fallen by 2 per cent and major agricultural crops, feeding the people and providing raw material to industry, are down by 6 per cent, how can the government raise Rs5.5 trillion in tax collection? It appears that the Finance Ministry itself is having second thoughts. A Ministry official has reportedly told media that the revenue target of Rs5.550 trillion announced in the budget was not sacrosanct. As long as the FBR can demonstrate that the tax base was actually expanding, tax exemptions declining and new taxpayers coming in, the tax target could be relaxed.

The government’s tax amnesty scheme does not seem to be coming up to the expectations of Prime Minister Imran Khan. This explains why he has hinted at an extension ‘to avoid inconvenience caused to citizens by the June 30 deadline.’

The IMF’s prescriptions are being followed blindly without taking into consideration the ground realities. This has already caused enough suffering, including nearly a million rendered unemployed and a 9 per cent rise in commodity prices. The extra expenditure being incurred by a lower middle-class family has increased by Rs41,000 a year and there is no light at the end of the tunnel. At the start of the IMF programme in Egypt in November 2016, 30 per cent of the population lived below poverty line. At the conclusion of the programme in April 2019 the number had doubled.