IMF criticises Pakistan's tax scheme, calls budget 'missed opportunity'

The IMF on Wednesday said that the proposed budget missed the opportunity to broaden the tax base

The International Monetary Fund (IMF) has expressed dissatisfaction with Pakistan's recently presented budget, a setback for the cash-strapped country, which has only two weeks before its bailout programme expires.

Calling it a "missed opportunity", the IMF said that the proposed budget missed the opportunity to broaden the tax base.

Pakistan has barely enough currency reserves to cover one month's imports. It had hoped to have $1.1 billion of the funds released in November, but the IMF has insisted on a number of conditions before making any further payments.

With only one more IMF board review before the end of the $6.5 billion Extended Fund Facility (EFF), Pakistan was expected to present a budget in line with programme objectives, restore the proper functioning of the FX market, and close the $6 billion gap before the board review.

“Staff remains engaged to discuss policies to maintain stability. However, the draft FY24 Budget misses an opportunity to broaden the tax base in a more progressive way,” Esther Perez Ruiz, the IMF’s resident representative in Pakistan, said in a text message to the news agency Reuters.

She further said that the long list of new tax expenditures undermines the fairness of the tax system and undercuts resources needed for vulnerable recipients in the Benazir Income Support Programme.

"The new tax amnesty runs against the program's conditionality and governance agenda and creates a damaging precedent,” added Perez Ruiz.

She stated that measures to address the liquidity pressures in the energy sector could be included as part of the overall budget strategy.

"The IMF team stands ready to work with the government in refining this Budget ahead of its passage," she said, implying that the country still has a chance to unlock its ninth IMF board review before the EFF programme expires.