Pakistan Imposes New Taxes To Secure Massive Bailout as IMF Delays Funding

Pakistan is set to impose new taxes worth 170 billion rupees ($640 million) in February as it seeks a significant bailout, with the International Monetary Fund (IMF) holding back $1.1 billion of a $6 billion deal from 2019, citing Pakistan’s inability to meet the deal’s conditions.

The latest round of talks between Pakistan and the IMF concluded on Friday with the latter recommending that the country introduce new taxes. The new taxes will pose further difficulties for citizens already dealing with higher food and energy costs.

The IMF’s delay has been perceived as a setback for Prime Minister Shahbaz Sharif, who is striving to avoid a default amid a worsening economic crisis and a rise in extremist violence. Pakistan has already been struggling with the recovery from devastating floods that occurred in the summer of 2022 and cost the lives of 1,739 people, as well as destroying 2 million homes.

In January, several countries and international institutions pledged over $9 billion to help Pakistan recover and rebuild from the floods, but Pakistani officials have said these funds will only be allocated for specific projects, and not given as cash. Pakistan’s Finance Minister Ishaq Dar has indicated that additional taxes and subsidy reductions will be imposed in order to meet the terms of the 2019 IMF deal.

Ehtisham-ul-Haq, a veteran economist, has warned that the imposition of new taxes could push Pakistan’s inflation rate up to 40% from its current level of 26% but has said that the IMF bailout is crucial for the country’s economy. Several friendly countries, including China, Saudi Arabia, and the United Arab Emirates, have indicated they will financially support Pakistan, but have stressed that they also want Pakistan to complete the 2019 IMF program.