ISLAMABAD: The International Monetary Fund (IMF) wants Pakistan to provide subsidies only to those who need them, saying that resources should be diverted from the rich and wealthy to the poorer sections of society.
This comment was made by Kristalina Georgieva, managing director of the fund, while giving an interview to an international broadcaster on Sunday.
Georgieva said the international lender asks Pakistan to take steps to be able to function as a country and not go to a dangerous place where it needs debt restructuring.
“My heart goes out to the people of Pakistan. They have been devastated by the floods that have affected a third of the country’s population,” the managing director said.
“We are emphasizing two things: one is to increase tax revenue, because those who are earning good money in the public or private sectors need to contribute to the economy. Number two is that the subsidy goes only to those people. Fair distribution of precious resources by shifting to those who really need them. It should not be that the rich benefit from subsidies. It should be the poor [who] benefit from them,” he said.
“And the funding is very clear there. We want the poor people of Pakistan to be protected.
In a background conversation, sources told JEE News that the IMF can help Islamabad overcome its balance of payments crisis only by ensuring that the country repays its debt without plunging into default. Be able to pay debts.
“Pakistan’s government will demand to seek debt restructuring from its Paris or non-Paris club countries when required,” the sources said.
Sources said that revitalization of the IMF program would be a necessary first step to achieve any debt restructuring, so the government is currently focusing on it. He added that when the program’s post-resuscitation phase comes around, debt restructuring — especially from non-Paris Club countries — could be considered to move toward the desired goals.
Pakistan will require $27 billion in external debt servicing in the form of principal and mark-up money in the next fiscal year. The ongoing IMF program of $6.5 billion under the Extended Fund Facility (EFF) will expire on June 30, 2023, and there is no possibility of further extension of the ongoing EFF arrangement.
Pakistan will have to take out a new loan from the Washington-based lender after the current EFF program expires, given its massive external debt servicing needs and the possibility of low foreign exchange reserves.
However, at this time, the IMF’s review mission has made it clear that the government must collect tax revenue from all individuals who have income to contribute to the national exchequer.
Out of a population of over 200 million, only 3.5 million are return filers, so the narrow tax base needs to be broadened.
Under IMF prescriptions, the government unveiled a mini-budget imposing an additional tax of Rs 170 billion and was expected to be approved by the National Assembly on Monday (today).
Secondly, the creditor has emphasized the need to eliminate untargeted subsidies and divert resources to the poor so that they can benefit from them.
Under the IMF programme, the government removed power sector subsidies for export-oriented sectors and also scrapped the Kisan package.
The government has requested the IMF to accommodate Rs 472 billion in flood-related expenses and the fund mission has agreed to this.
For the Benazir Income Support Program (BISP), the government has increased the allocation from Rs 360 billion to Rs 400 billion to protect the poorest from inflationary pressures, which is expected to increase by June 2023. The figure of 35 percent can be crossed. Inflation based on current CPI for January 2023 from 27.6%.
