By: Mahua Venkatesh
Pakistan's Finance Minister Ishaq Dar finds himself in a bind. Dar, a close aide of PML-N supremo, was reappointed Finance Minister and promised to bring down prices and reduce taxes. But now with talks between Pakistan and the International Monetary Fund once again hitting a roadblock, his actions will be scrutinized with a fine tooth comb.
Dar, who took over in September, has managed to do little for the economy so far. And now, amid Pakistan's reluctance to impose additional taxes on petroleum products as prescribed by the multilateral agency, talks between Islamabad and IMF, which were supposed to be held last month have not taken place. An analyst tracking South Asian economies said that there is no clarity on the review meeting. This has once again triggered fresh fears of a sovereign default.
Besides the imposition of additional taxes, IMF riders for reviving the loan program also included a commitment to the tax-to-GDP ratio of at least 11 percent. The country's tax-to-GDP ratio, though has improved, is still in the single digit.
Islamabad has also not furnished a full report of the economic situation and the utilization of the first tranche of funds to the IMF due to the floods. With the deteriorating economic situation in Pakistan, its allies and even other multilateral agencies have shown reluctance in doling out funds to the South Asian nation.
Pakistan needs more than $32 billion this fiscal year for debt repayment.
Pakistan's former Finance Minister Miftah Ismail had been instrumental in reviving the stalled IMF loan program. As part of the program, Ismail however had to eliminate petroleum subsidies and imposed taxes, for which he had come under severe criticism even from his party members.
With headline inflation touching 26.6 percent in October - an increase from 23.2 percent in the previous month, the Shehbaz Sharif government will find it difficult to impose additional taxes.
The Pakistani rupee after handsome gains against the US dollar in October is also once losing sheen.
Hit by severe floods and rising political uncertainty, the country's economic situation has only deteriorated in the last few months.
Now following India's footsteps, Pakistan also wants to buy discounted Russian oil. Islamabad is hoping to ink a similar oil deal as that of India about the purchase of oil from Russia.
However, an analyst said that it may not be easy for Pakistan to clinch a similar deal especially as the tension between Islamabad and Moscow has risen after the latter claimed that Ukrainian officials have been in Pakistan to discuss nuclear weapons technology. Also, observers are not sure how the US will react if Pakistan starts importing oil from Russia. (KB/IANS)
(Mahua Venkatesh specializes in covering economic trends related to India and the world along with developments in South Asia)
