Cash-strapped Pakistan must take steps to ensure that its high earners pay taxes and only the poor get the subsidies if it wants to function as a country, the International Monetary Fund has said, amid looming fears of a default.
In an interview with the German state broadcaster Deutsche Welle on the sidelines of the Munich Security Conference in Germany on Friday, IMF chief Kristalina Georgieva said Pakistan needs to take strong measures to avoid getting into a “dangerous place” where its debt needs to be restructured.
She said the IMF was very clear that it wanted the poor people of Pakistan to be protected, the Dawn newspaper reported, “It shouldn’t be that the wealthy benefit from subsidies. It should be the poor [who] benefit from them,” she said.
“What we are asking for are steps Pakistan needs to take to be able to function as a country and not to get into a dangerous place where its debt needs to be restructured,” she said.
Pakistan was devastated by last year’s flash floods that affected one-third of its population, she said.
“I want to stress that we are emphasising two things. Number one: Tax revenues. Those who can, those that are making good money [in the] public or private sector need to contribute to the economy.
“Secondly, to have a fairer distribution of the pressures by moving subsidies only towards the people who really need it. It shouldn’t be that the wealthy benefit from subsidies,” she said.
The IMF chief’s statement came days after the two sides concluded the ninth review of the $6.5 billion bailout package without a staff-level agreement after 10 days of talks. However, both sides agreed to a set of measures that could still help clinch the deal.
Pakistan, which is in dire need of funds as it battles a wrenching economic crisis, has received financial assistance from the IMF in the past and is presently in discussions with the organisation to resume its loan programme.
An agreement on the ninth review of the programme would release over $1.1 billion. A resumption of the IMF programme would also unlock other avenues of funding for Pakistan.
Meanwhile, foreign exchange reserves held by the State Bank of Pakistan have fallen to around $3 billion, barely enough to cover three weeks of controlled imports.
Earlier, the IMF said in a statement that both sides have agreed to stay engaged and “virtual discussions will continue in the coming days to finalise the implementation details” of the policies, including the tax measures, discussed in Islamabad.
The government is in a race against time to implement the tax measures and reach an agreement with the IMF. The IMF has given a deadline of March 1 to Pakistan for implementing all the measures.