The $3, nine-month Stand-by Arrangement (SBA) inked between Pakistan and the International Monetary Fund (IMF) will mark the 23rd time the country has sought support from the global lender since 1958; it is also the 14th bailout since 1988 and the 13th SBA.
According to a statement issued by the IMF, the latest SBA aims to “support the authorities’ immediate efforts to stabilize the economy following recent external shocks, preserve macroeconomic stability and provide a framework for financing from multilateral and bilateral partners.” This sums up several problems facing Pakistan, but falls short of explicitly stating the country’s most pressing issue: revenue generation.
Despite being a habitual borrower, Pakistan has repeatedly failed to collect income taxes from several sectors that continue to enjoy free rides at the expense of the increasingly burdened salaried class. According to budget documents, the Federal Board of Revenue (FBR) provisionally collected Rs. 7.144 trillion in taxes during fiscal year 2022-23 against a target of Rs. 7.64 trillion, pushing the fiscal deficit to nearly 8 percent of GDP. And repeated denials by the finance minister notwithstanding, the fact remains that Pakistan was on the verge of default before the latest bailout.
Key to the problem is the failure of successive governments to bring traders—small and big—into the tax net, with the state willfully ignoring clear disparities between reported and actual earned income. A similar situation exists within the agriculture sector, as city-dwelling landlords avail benefits intended for subsistence farmers, living lavish lives without any regard for the taxes they owe the state. It is no surprise that there is reluctance to collect from landlords, when so many of Pakistan’s lawmakers, past and present, have emerged from the same group. Senior public servants have also nabbed their share of the dwindling pie, availing benefits of plots secured during service without paying any tax.
The IMF has, not for the first time, advised withdrawing all kinds of tax exemptions and concessions to ensure the country achieves economic stability. The key question, however, remains whether or not Pakistan’s ruling elite would ever be willing to pay its dues rather than continuing to burden the masses under an unending cycle of misery.