Friday, February 3, 2023

Miftah Ismail accepts the IMF’s demand to cut fuel subsidies

Miftah Ismail, the country’s new finance minister, agreed with the International Monetary Fund’s (IMF) proposals to lower fuel subsidies and cancel a company tax amnesty programme, and pledged to pursue structural changes to revive the country’s crisis-ravaged economy.

Although in 2019, the International Monetary Fund (IMF) approved a $6 billion loan for Pakistan to be repaid over three years, the money’s delivery has been delayed due to worries about the speed of reforms.

A visit to the International Monetary Fund (IMF) during the lender’s annual spring meetings in Washington this month by Finance Minister Miftah Ismail, who took office this month after a previous cabinet was ousted by a vote of no confidence, led to “positive discussions.”

“They’ve talked about reducing the fuel subsidy. I agree with them,” Ismail, a former economist with the International Monetary Fund, said at the Atlantic Council.

“We just cannot afford to continue to provide the subsidies that we are.” “As a result, we’re going to have to scale back,” he explained.

The former prime minister, in an attempt to avoid being ousted, set a “trap” for his successors by imposing heavy subsidies on fuel and electricity as well as a tax amnesty scheme for businesses — measures that prevented Pakistan from receiving a disbursement from an IMF loan, according to the IMF’s representative.

In an event arranged by Pakistan’s embassy, Ismail told reporters that the government had granted amnesty to enterprises for establishing factories so that they would not be required to pay taxes. “Even if they dodged taxes, that was fine,” he added.

Ismail, on the other hand, believes that some targeted subsidies for Pakistan’s poorest should continue in the face of sky-high worldwide costs.

Shehbaz Sharif, the country’s new prime minister, has pledged to revive the country’s ailing economy, which is expected to be a prominent topic in the country’s upcoming elections next year.

Pakistan has sought international assistance on numerous occasions and has a tax base that is chronically underdeveloped.

As Ismail noted, Pakistan, the world’s fifth-most-populous country, needed to transition to a new economic model by eliminating hurdles and promoting exports to other countries around the world.

“We live in such an elite-benefiting society that nearly every subsidy that you can think of goes to the wealthiest people,” he explained.

Read Also: Govt likely to reverse its decision on petrol prices: sources

Ismail stated that his immediate objectives were to get double-digit inflation under control — a task made more difficult by the elimination of fuel subsidies — and to jump-start job creation.

He denied that Pakistan was at risk of defaulting on its loans, pointing out that the country’s foreign reserves now stand at $10 billion and that the vast majority of its bilateral debt is held by friendly countries such as Saudi Arabia, China, and the United Arab Emirates.

Sharif has a little more than a year before he is required to call a general election, prompting some commentators to question whether toppling Khan will backfire given that his administration inherited an economic catastrophe that will take time to recover from.

Ismail, on the other hand, believes that there is “never a bad time to do the right thing.”

We should be able to make a difference in a few months if what we claim is correct and we are genuinely more capable.” It is quite OK for us to be ejected by the populace if we do not comply.

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