Pakistan Signs $7 Billion IMF Loan Agreement To Support Changing Economy

Islamabad: In an effort to support Pakistan's flagging economy, the International Monetary Fund said that it has negotiated a new $7 billion loan agreement with that country.

In return, Islamabad consented to carry out further contentious reforms, such as expanding the South Asian country's historically low tax base.
Pakistan's economy collapsed last year due to decades of mismanagement, political unrest, devastating monsoon floods in 2022, and the worldwide economic slump. The country was on the verge of insolvency.

The country was spared by last-minute loans from friendly nations and IMF assistance, but its finances are still in terrible shape due to rampant inflation and enormous public debt.

It stated in a statement on Friday that Pakistan should be able to "cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth" under the terms of the new three-year agreement, which is still pending approval by the IMF Executive Board.

Islamabad negotiated for months with IMF representatives to obtain the new loan, which represents the lender's 24th payment to the country in more than 60 years.

It was contingent on extensive reforms, chief among them the enlargement of the revenue base, which had been persistently low.

Just 5.2 million persons filed income tax returns in 2022, out of a country of approximately 240 million, where the majority of jobs are in the unorganized sector.

The government plans to collect approximately $46 billion in taxes during the 2024–25 fiscal year, which began at the beginning of July. This represents a 40 percent  increase from the previous year.

In an attempt to increase the revenue bracket, the tax administration has used more unconventional means, blocking the SIM cards of 210,000 mobile subscribers who have not yet submitted tax returns.

A further important requirement from the IMF is that Islamabad cut its fiscal deficit by 1.5 percent to 5.9 percent in the upcoming year.

However, the IMF estimates that by 2024, Pakistan's $242 billion public debt service will still account for half of the country's government revenue.

The actions taken by Islamabad have drawn criticism from analysts who see them as superficial changes intended merely to appease the IMF rather than solving deeper issues.

Ali Hasanain, an associate professor of economics at the Lahore University of Management Sciences, told AFP that it is difficult to overlook recurring themes in the latest IMF agreement.