In light of mounting concerns about a default, the International Monetary Fund (IMF) has advised Pakistan to take efforts to ensure that only the needy receive subsidies and that wealthy people pay taxes.
IMF head Kristalina Georgieva said Pakistan must take decisive action to avoid going into a “dangerous zone” where its debt needs to be restructured in an interview on the sidelines of the Munich Security Conference in Germany on Friday.
She asserted that the IMF was very clear that it wanted the poor people of Pakistan to feel secure, the media reported, “It shouldn’t be that the wealthy benefit from subsidies. It should be the poor [who] benefit from them,” she said.
“What we are asking for are steps Pakistan needs to be able to function as a country and not to get into a dangerous place where its debt needs to be restructured,” she further added.
One-third of Pakistan’s population was impacted by flash floods last year, which completely devastated the country, she claimed. The IMF chief made his statement a few days after the two parties ended their ten days of negotiations without reaching an agreement at the staff level about the ninth review of the USD 6.5 billion bailout programme.
Nonetheless, all parties concurred on a number of measures that might yet be used to seal the deal. Pakistan has already received financial aid from the IMF and is currently in talks with the organisation to renew its loan programme. Pakistan is in desperate need of money as it fights a searing economic crisis.
Around USD 1.1 billion would be made accessible if the ninth review of the programme could be agreed upon. Resuming the IMF plan will also open up new finance options for Pakistan.
The State Bank of Pakistan’s foreign exchange reserves, which were once about USD 3 billion, are now barely enough to finance three weeks of restricted imports. To put the tax reforms into effect and come to an agreement with the IMF, the government is working against the clock. Pakistan has until March 1 to follow all of the IMF’s recommendations.