Pakistan has been spiraling into a deep economic crisis as the country’s rupee is falling down, fuel prices shooting up, and taxes on luxury goods rising. China has also come to its rescue by lending 700 billion USD this week. The country is making all efforts to unlock the next tranche of $6.5 billion loan facility from the International Monetary Fund (IMF).
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The financial body has laid down various conditions for Pakistan to overcome the economic collapse. Pakistan has agreed to all such conditions and increased tax on luxury goods and services, raise petrol prices, etc.
In addition, the country has also adopted a cost-cutting formula to deal with the financial crisis. It has directed the ministers, and advisors to forgo their perks to save the government’s money and get the IMF deal.
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There are several ways which Pakistan has been trying to deal with the economic crisis in the country.
Pakistan’s cost-cutting formula
Pakistan Prime Minister Shehbaz Sharif has asked his ministers and advisers to fly economy class, forgo luxury cars and their salaries as part of an austerity drive that will save the government 200 billion rupees a year.
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Under these measures, all federal ministers and government offices in Pakistan have been directed to reduce expenditure by 15% and he had also asked his ministers along with advisers to forgo salaries, allowances, luxury cars, foreign trips, and business class travel.
The ministers agreed to the measures voluntarily, he said, adding all cabinet members will surrender their salaries and perks, and they will pay all of their utility bills from their pockets
Armed forces have also given a positive response to cut non-combat expenditures. Other steps include a complete ban on the purchase of luxury items or vehicles for all government-run entities and no administrative unit like a new district or town will be created for two years.
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Pakistan taxing its citizens
The national assembly of Pakistan unanimously approved the government’s Finance (Supplementary) Bill 2023 or ‘mini-budget’, a move for seeking a $6.5 billion tranche of the IMF loan. The Pakistani government has increased taxes on a raft of luxury imports and services.
According to the bill, sales tax has gone up from 17% to 25% on imports ranging from cars and household appliances to chocolates and cosmetics. People will also have to pay more for business-class air travel, wedding halls, mobile phones, and sunglasses. A general sales tax was raised from 17 to 18 percent.
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While passing the bill with few amendments in the parliament, Finance Minister Ishaq Dar informed that excise duty on business class ticket fares for those flying to South America, Africa, and the Middle East. The excise duty on tickets to European countries, Australia, New Zealand, and other countries have also been increased.
Pakistan getting China’s support
This week, Pakistan will receive a new $700 million loan from China to help shore up its foreign exchange reserves, the country’s finance minister said on Wednesday.
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The credit facility, made through the state-owned China Development Bank will boost Pakistan’s forex reserves by about 20% and comes as the country is thrashing out a deal with the IMF to unlock funds from a $6.5 billion bailout.
China is already Pakistan’s single largest creditor with its commercial banks holding about 30% of its external debt.
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Iran promoting trade with Pakistan
Iran has established six border markets to promote trade with Pakistan, said Iranian Consul General Hasan Noorain, which may help the crisis-hit country. In the last 10 months, the volume of bilateral trade reached $2 billion dollars, he said, adding that the target has been set at $5 billion.
Noorain also said that trading is facing difficulty due to the absence of a banking channel. He added that the visa policy has also been relaxed, and progress is also being made in barter trade with Pakistan.
He said that Pakistan and Iran have friendly relations, however, the trade between the two sides has not developed as it should have so far.
