Pakistan : Toxic austerity attack comes hot on the heels of a pandemic

31 January by Abdul Khaliq


As the IMF executive board met on January 28 to decide on Pakistan`s request for the revival of $6bn Extended Fund Facility (EFF), the government remained optimistic having fulfilled all the five conditions imposed by the global lender to revive its 39-month program suspended since April last year, including approval of the mini-budget and State Bank of Pakistan Amendment Act by parliament. With the EFF revival, the payment of about $1bn would bring the total disbursement under the $6bn EFF to about $3.027bn.

With the government conceding to IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
’s latest toxic conditions, strong criticism is voiced within and outside parliament. Amidst strong resistance by the opposition during the approval of the mini-budget, the ruling PTI last week bulldozed a set of bills in the Parliament aiming at so-called “austerity measures”. However, this action has hit a sharp decline in the popularity of the Imran Khan government. Handing the control of the State Bank of Pakistan over to IMF in the name of “institutional autonomy” has attracted strong opposition from all sections of society, including some members of the govt.

Amidst Pakistan’s debt-stricken economy and with prices of everyday essentials; food and fuel rising sharply, the negative inflationary impacts of the IMF fresh conditions on the low-and middle-income segments of the population are beyond doubt. As a result of the latest ‘austerity measures’, the impending onslaught of inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. is so sure that the finance minister has himself admitted that the withdrawal of certain tax exemptions would directly or indirectly affect the common people.

With the recent passage of the mini-budget, several edibles; especially imported ones, are going to get costlier. 17% sales tax has been imposed on a number of items that were earlier exempted from taxes. Moreover, 17% of sales tax has also been imposed on the imported raw material used for making infant food. Even though poultry and beef are among the basic food items that have been exempted from tax, the same may get costlier given the sales tax on imported machines used in the poultry sector from 10 to 17% in addition to increasing tax on local poultry and cattle feed from 7to 17%.

The general sales tax is also going to increase, from 10 to 17%, on dairy items. Similarly, 5% advanced tax is going to be imposed for several services, covering laundry and dry-cleaning services, services by car dealers, marriage halls, catering, IT services, web designing and hosting and call centres, among others. Medicines could also get expensive with the withdrawal of tax exemptions on the pharmaceutical sector. It will also lead to the imposition of a 17% sales tax on imported raw material for pharmaceutical active ingredients.

Moreover, the withdrawal of sales tax exemption for various crop seeds, agriculture inputs and farm implements will have far-reaching consequences for the already struggling farming community, raising their cost of cultivation by 5 to 10 %. The tax on cottonseed will adversely impact cotton growers and allied industries. Similarly, maize, rice and vegetable seeds are also facing the same predicament as the additional tax will result in overall productivity loss and food security concerns. high taxation will increase the price of these commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. for the end consumers and subsequently add to food inflation. In nutshell a new tsunami of inflation is going to hit Pakistan, causing negative repercussions.

The government’s excuse of global commodity price boom as a major reason behind galloping inflation has little currency. It is important to recognize that the inflationary storm engulfing Pakistan is far more significant than in other peer economies: From January 2020 to September 2021, food prices in Pakistan increased by almost 18% compared to almost 6% across the border in India. [1]

It is pertinent to mention is the spell of inflation comes hot on the heels of a pandemic during which Pakistan’s economy has experienced a negative growth rate of 0.4% and a pre-pandemic austerity cycle that eroded the purchasing power of millions of citizens. After more than three years of misery, citizens are feeling more agony as the latest round of price adjustments works its way through the economy. The expected resumption of the IMF program in the coming weeks may further force the government’s hand, leading to an increase in power tariffs.

Amidst this dismal scenario, according to one conservative IMF estimate, Pakistan’s “external financing requirement stands at $ 28 billion in 2022-23 [2].” Which expands dark shadows over Pakistan’s ailing debt-trapped economy.




Abdul Khaliq

CADTM Pakistan

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