Pakistan has struggled with multiple IMF programs aimed at bolstering its economy, but these efforts have consistently fallen short, leading to a deepening economic crisis. A recent report questions whether these reform programs were ever set up for success. Each IMF intervention highlights the country’s narrow tax base, numerous distortions, and weak institutions as key issues.
The report points out a recurring pattern where the IMF prescribes reforms, Pakistan implements them, and the cycle repeats with little sustainable progress. Economist Daron Acemoglu’s theory suggests that entrenched groups in power prioritize policies that benefit themselves over the broader welfare of society, perpetuating inefficiencies in governance and economic management. Pakistan serves as a prime example of this dynamic, according to the report.
One concerning aspect highlighted is Pakistan’s heavy reliance on a petroleum levy as a major revenue source, with the IMF setting ambitious targets for the upcoming budget. Despite this, the effective tax rate on petroleum products in the country is alarmingly high at 166 percent, raising questions about the fairness and sustainability of such fiscal measures. The report emphasizes that the levy’s structure concentrates fiscal resources at the federal level, disproportionately impacting the general population.
Furthermore, the report sheds light on the disproportionate tax burden on the salaried class, with a significant rise in withholding tax from salaries in recent years. While salaried professionals bear the brunt of taxation, other influential groups like traders and landlords often evade effective taxation, illustrating a systemic bias in the country’s tax regime. This unequal tax burden exacerbates Pakistan’s fiscal challenges, leading to increased borrowing at high interest rates.
Despite repeated IMF interventions, Pakistan continues to face economic and social challenges, reflected in its low ranking on the Human Development Index. The country’s struggle to translate economic potential into tangible development outcomes underscores the need for more effective and equitable policy reforms.
