Pakistan has finalized a landmark three-year, $7 billion aid package with the International Monetary Fund (IMF), marking a critical step in stabilizing its economy.
The agreement, announced by the IMF on Saturday, follows an emergency loan in 2023 that averted a sovereign debt default amidst severe economic pressures.
The South Asian nation, home to over 240 million people, is grappling with the lingering economic fallout from the COVID-19 pandemic, Ukraine's conflict, and extensive flooding in 2022. These challenges have exacerbated inflationary pressures and strained fiscal stability.
This latest IMF program, Pakistan's 24th bailout in over six decades, aims to "solidify macroeconomic stability and foster conditions for robust, inclusive, and resilient growth," according to the IMF.
The aid will be disbursed as loans to Pakistan, contingent upon approval by the IMF's executive board.
Under the leadership of Prime Minister Shehbaz Sharif, Islamabad has committed to a series of reforms to meet IMF conditions.
Key among these reforms is a substantial effort to boost tax revenues, targeting a 40% increase to nearly $46 billion during the 2024-25 fiscal year.
This initiative aims to address the low tax compliance rate, with only 5.2 million individuals filing tax returns in 2022, predominantly from the informal sector.
Finance Minister Muhammad Aurangzeb has outlined measures to expand the taxpayer base, including stringent actions like blocking non-filers mobile phone SIM cards and restricting their overseas travel.
Additionally, Pakistan plans to reduce its fiscal deficit by 1.5% to 5.9% in the coming year, aligning with IMF directives.
Despite previous austerity measures, the country grapples with a substantial foreign debt burden, currently standing at $242 billion.
The IMF projects that half of Pakistan's government income in 2024 will be allocated towards servicing this debt, underscoring the ongoing fiscal challenges despite the latest aid agreement.
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