Pakistan’s finance minister announced a range of measures on Wednesday to narrow fiscal and trade deficits as prime minister Imran Khan prepares to present the government’s case to the IMF for a loan to rebuild confidence in the country’s economy.
In a speech in the lower house of parliament, Asad Umar unveiled a cut in import duty on industrial raw materials to raise industrial productivity and help ease a chronic energy crisis that has caused repeated power outages and gas supply interruptions.
He also proposed a series of tax measures for investors in the stock market, as well as proposals to cut red tape and lower taxes for small and medium-sized businesses.
“We need to bring a balance in revenue and expenditure as it is vital for growth,” Mr Umar said. “Our imports are touching a dangerous point. We have to increase exports and bring reforms in agriculture and other sectors”.
Since he was elected in August, Mr Khan has focused on staving off a balance of payments crisis. In the year before Mr Khan’s election, liquid foreign currency reserves fell to the equivalent of about eight to nine weeks of imports,down from more than 12 weeks, mainly due to a widening current account deficit.
Under Mr Khan’s leadership, the country has secured at least $11bn in combined loans from Saudi Arabi a, the United Arab Emirates and China to meet its foreign payments in the financial year to June this year. But it has also drawn up plans to seek a bailout from the IMF.
Economists said an IMF loan was the only way for Pakistan to rebuild confidence and persuade multilateral lenders such as the World Bank and the Asian Development Bank to extend loans to the country.
With overall economic growth during this financial year set to fall to 4 per cent of GDP down, from 5.8 per cent in the last financial year, Mr Khan was risking popular anger, they said.
“Across Pakistan, there is a lot of bitterness among businesses and generally people feel that there is a definite slowdown,” one senior western economist said. “As Pakistan heads into an IMF programme, the slowdown will continue.”
Mr Umar announced cuts in import duty for five years on imported equipment for renewable energy generation as well as machinery for manufacturing in special economic zones.
He also said taxes on imported luxury cars would be raised.
But analysts warned that the outlook for the economy depended on how far Mr Khan’s government could successfully tackle areas in need of reform.
“As we go forward, much depends on how far the government can deal with long-term issues central to the economy,” said Abid Sulehri, member of a government economic advisory council.
Pakistan has one of the world’s worst systems of tax collection where less than 1 per cent of the population pays an income tax.
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