New Delhi, Nov 21: Pakistan’s Finance Minister Ishaq Dar finds himself in a bind. Dar, a close aide of PML-N supremo, was reappointed Finance Minister, promised to bring down prices and reduce taxes. But now with talks between Pakistan and the International Monetary Fund once again hitting a roadblock, his actions will be scrutinised with a fine tooth comb.
Dar, who took over in September, has managed to do little for the economy so far. And now, amid Pakistan’s reluctance to impose additional taxes on petroleum products as prescribed by the multilateral agency, talks between Islamabad and IMF, which were supposed to be held last month have not taken place. An analyst tracking South Asian economies said that there is no clarity on the review meeting. This has once again triggered fresh fears of a sovereign default.
Besides imposition of additional taxes, IMF riders for reviving the loan programme also included a commitment of tax-to-GDP ratio of at least 11 per cent. The country’s tax to GDP ratio, though has improved, is still in single digit.
Islamabad has also not furnished a full report of the economic situation and the utilisation of the first tranche of funds to the IMF due to the floods. With the deteriorating economic situation in Pakistan, its own allies and even other multilateral agencies have shown reluctance in doling out funds to the South Asian nation.
Pakistan is in need of more than $32 billion this fiscal year for debt repayment.
Pakistan’s former Finance Minister Miftah Ismail had been instrumental in reviving the stalled IMF loan programme. As part of the programme, Ismail however had to eliminate petroleum subsidies and imposed taxes, for which he had come under severe criticism even from his own party members.
With headline inflation touching 26.6 per cent in October – an increase from 23.2 per cent in the previous month, the Shehbaz Sharif government will find it difficult to impose additional taxes.
The Pakistani rupee after handsome gains against the US dollar in October, is also once losing sheen.
Hit by severe floods and rising political uncertainty, the country’s economic situation has only deteriorated in the last few months.
Now following India’s footsteps, Pakistan also wants to buy discounted Russian oil. Islamabad is hoping to ink a similar oil deal as that of India in relation to purchase of oil from Russia.
However, an analyst said that it may not be easy for Pakistan to clinch a similar deal especially as tension between Islamabad and Moscow has risen after the latter claimed that Ukrainian officials have been in Pakistan to discuss nuclear weapons technology. Also observers are not sure how the US will react if Pakistan starts importing oil from Russia.
(Mahua Venkatesh specialises in covering economic trends related to India and the world along with developments in South Asia.)
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