Revenue shortfalls drive Pakistan’s existing debt burden: IMF

ISLAMABAD, FEB 21 (DNA): International Monetary Fund (IMF) Resident Chief in Pakistan Mahir Binici has linked Pakistan’s existing economic challenges due to debt burden to Islamabad’s inability to generate revenues up to the potential.

“There is a higher burden of taxation on the formal sector,” the IMF official said while speaking at a conference on “Retail Reimagined: Innovate, Collaborate and Thrive”.

Binici further underscored that a larger fiscal burden arose mainly because there are certain sectors which are not contributing to the national exchequer.

His remarks come as a review mission of the Washington-based lender is set to visit Pakistan in the first week of March to hold review parleys under the $7 billion Extended Fund Facility (EFF).

The smooth sailing of the first review of IMF sponsored programme is considered quite crucial, as Islamabad will have to seek waivers on the unfulfillment of certain conditionalities.

Prime Minister Shehbaz Sharif-led government secured the approval of IMF’s Executive Board for the fresh loan programme in September 2024 which was followed by the disbursement of a $1.02 billion tranche.

With IMF officials in Pakistan, Islamabad will also have to evolve a broader consensus on the major contours of the next budget for 2025-26 with the lender’s staff.

If both sides fail to evolve consensus, completion of the first review might be linked with approval of the budget from the parliament.

The IMF review mission is expected to visit Islamabad from March 4 at a time when the current account has turned from surplus to a deficit month-on-month (MoM) basis, as it posted a deficit of $420 million in January 2025.

Speaking on the government’s commitment to stabilise the economic indicators, Federal Finance Minister Muhammad Aurangzeb earlier said that the share of the retail sector in the country’s GDP stood at 19% but their contribution to tax was just hovering at 1%.

He said that there was an element of formal versus informal sectors even in retail, tobacco and beverages where the formal ones were subsidising the free riders. This kind of free ride is unsustainable.

“The salaried, manufacturing and to some extent services sectors have been facing disproportionate burden for paying more taxes but this cannot go on. The proportion of salaried class burden has gone up and I knew it because I paid out Income Tax last September as a salaried person.

“It is not sustainable. Now agriculture, retail/wholesale and real estate will have to step up to travel on this trajectory,” the finance minister said while addressing the inaugural session of the conference.

The FinMin further remarked that enforcement would be done in a big way against informal sectors and those un-documented sectors contributing nothing to the national exchequer.