Pakistan and IMF reach a three-year $7 billion aid package deal

Pakistan and the International Monetary Fund reached a three year, $7 billion aid package deal after an emergency loan in the summer of 2023 saved it from a foreign debt default amid multiple internal and external crises. The new program that the IMF announced the day before yesterday, 13th July 2024, still needs validation from the executive board of the Fund. 

Pakistan has a population of more than 240 million people who are struggling to cope with the economic consequences of the Covid-19 pandemic, Russian invasion of Ukraine and the massive flood that struck the country in 2022. In addition to that, the country has always faced an issue of soaring inflation.

The IMF Deal

This bailout by the IMF is Pakistan’s 24th time in more than six decades that aims to cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth.” The money is to come to Pakistan in the form of loans.

Islamabad’s plan of action 

The government in Islamabad under Prime Minister Shehbaz Sharif has committed to a number of reforms to reach the deal, among them a major effort to increase the country’s tax revenue. During the 2024-25 fiscal year, which starts on July 1, it aims to take in nearly $46 billion in taxes, a 40% increase on the previous year. This would create more pressure and increase the tax burden on Pak citizens. Just 5.2 million people filed a tax return in 2022, with most Pakistanis working in the informal sector.

Finance Ministry Comments and reduction of foreign deficit

Finance Minister Muhammad Aurangzeb has vowed to increase taxpayer numbers, with authorities so far introducing measures such as blocking mobile phone SIM cards belonging to non-filers and restricting their travel abroad.

Islamabad also aims to rein in its fiscal deficit by 1.5% to 5.9% in the coming year, in accordance with another key demand from the IMF. The government was already forced to introduce unpopular austerity measures to obtain the last bailout, but Pakistan still holds very high foreign debt, at $242 billion. The IMF says that half the government’s income in 2024 will go toward servicing that debt.