Business Recorder
EDITORIAL: On 9 May, the Board of Directors of the International Monetary Fund (IMF) approved the staff level agreement (SLA) reached with the government of Pakistan on 28 March, a prerequisite for the release of the next tranche. The 41-day delay between the two dates is not unprecedented though this usually indicates prior conditions that must first be met by the debtor country. Pakistan hiked the petroleum levy on the same day as approval by the Board – by 13.91 rupees per litre for both petrol and diesel – with many declaring that this may have been agreed earlier and was made subject to the continuation of the Middle East conflict causing major oil supply disruptions throughout the world. This argument is strengthened by the fact that the Federal Board of Revenue (FBR) had already declared a 683 billion-rupee shortfall July-April 2026 against the downward revised budgeted target of 13.9 trillion rupees. As is the norm, the press release issued after Board approval lauds “the authorities’ strong implementation, despite the Middle East war, (that) has maintained economic stability and improved financing and external conditions. The shocks emanating from the Middle East war underline the continued importance of maintaining strong policies to continue building resilience and of moving ahead with structural reforms to achieve sustainable long-term growth.” There is no doubt that the authorities are implementing the agreed reforms, which include (i) full cost recovery by utilities (with little achieved in terms of reducing the sector’s inefficiencies and instead relying heavily on borrowing) — recently 1.2 trillion rupees was borrowed to retire the circular debt — with interest passed onto the consumers, (ii) enforcement measures by the FBR generating 384 billion rupees (measures that are reportedly being challenged in tribunals and, if unsuccessful, in courts), (iii) a high policy rate – the State Bank of Pakistan recently upped the rate by 100 basis points – a decision premised on the fact that a high rate would stifle inflation; this in Pakistan’s case, however, is not evident because the major borrower is the government and not the private sector, and (iv) and last but not least, continued reliance on external borrowing (with Saudi Arabia extending an additional 3 billion dollars after UAE’s loan recall was cleared) with foreign exchange reserves almost entirely borrowed funds. True to form government’s sources indicated the tranche release as a major achievement that as per the IMF press release was reflective of the fact that “policy priorities remain centered on maintaining macroeconomic stability and advancing reforms to strengthen public finances, enhance competition, raise productivity and competitiveness, bolster the social safety net and human capital, reform SOEs, and improve public service provision and energy sector viability.” Disturbingly, the implementation of these reforms that, like in the previous twenty-three IMF programmes, are designed by the IMF and not by domestic economists; therefore, they lack in-house out-of-the-box solutions. The power and tax sub-sectors require major structural changes that must focus on formulating and implementing policies that are designed to look at the issues holistically, allowing for a policy that is designed to ensure that the contractual obligation allowing for capacity payments with the existing independent power producers be dealt with before supporting renewables which has reduced demand from the grid and raised capacity payments; and the heavy-handed tactics employed by the FBR to enforce their measures on taxes imposed in the sales tax mode (which are passed onto the consumers) must focus on raising taxes based on the ability to pay principle (for example, raising that tax on agricultural income to the same rate as payable by the salaried). To conclude, Business Recorder has been continuously underscoring the need for reducing current expenditure by at least 2 trillion rupees in next year’s budget by curtailing all non-operational expenses and ushering in pension reforms that envisage employee contributions which would reduce the budgeted outlay for pensions and thereby reduce pressure on FBR to meet unrealistic annual targets – a situation that would enable FBR to proceed with structural reforms envisaging higher direct ability to pay taxes as opposed to indirect taxes whose incidence is greater on the poor than on the rich. Copyright Business Recorder, 2026
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