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Pakistan, facing a severe economic crisis, has taken drastic measures to secure a $7 billion loan from the International Monetary Fund (IMF). The country announced the closure of six ministries, the merger of two others, and the elimination of nearly 150,000 government jobs in a bid to reduce administrative expenses and meet the IMF's requirements. This move reflects the dire straits Pakistan's economy is in and highlights the IMF's influence in shaping the country's fiscal policies.
The IMF, on September 26, agreed to the assistance package and released the first tranche of $1 billion. This followed Pakistan's commitment to implement a series of reforms, including reducing expenditures, increasing the tax-to-GDP ratio, expanding the tax base to include sectors like agriculture and real estate, limiting subsidies, and transferring some fiscal responsibilities to the provinces. These measures are aimed at bolstering Pakistan's economic stability and fostering long-term growth.
Finance Minister Muhammad Aurangzeb, upon his return from the United States where the deal was finalized, emphasized the need to implement these policies diligently to demonstrate that this would be the last IMF program for Pakistan. He highlighted the importance of formalizing the country's economy to join the G20 nations and underscored the significance of right-sizing ministries. The decision to close six ministries and merge two others is set to be implemented, and the elimination of 150,000 government posts will be carried out across various ministries.
These drastic measures highlight the pressure Pakistan is facing to stabilize its economy. The country has been struggling with its finances for several years, reaching a point of near default in 2023. It was only through a timely loan of $3 billion from the IMF that the situation was averted. However, the IMF's involvement comes with conditions, and Pakistan is forced to make tough decisions to comply with these demands. The country's economic future hangs in the balance as it navigates this challenging period.
The government's efforts to broaden the tax base by bringing in new taxpayers are also a crucial aspect of the reform package. This will involve increasing the number of taxpayers and ensuring that all economic activities contribute their share to the national revenue. The minister's claim of an improving economy, supported by increased forex reserves, growth in exports, and investor confidence, indicates that the government is confident in its reform program. However, the effectiveness of these reforms in the long term remains to be seen, and the coming months will be crucial in assessing their impact.
Source: Pakistan cuts 1.5 lakh jobs and dissolves six ministries to secure $7 billion IMF loan