Pakistan Nears IMF Bailout Pact After Tax Plan Approved

(Bloomberg) -- Pakistan is inching closer to reviving a $6.5 billion bailout from the International Monetary Fund after the parliament approved on Monday the plan to roll out higher taxes.

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An agreement is expected to be finalized within three days after most issues were resolved, ARY News reported, citing Hamed Yaqoob Sheikh, secretary at the finance ministry. A bill that will increase the general levy to 18% from 17% and boost tax on imports of luxury items such as mobile phones to 25% from 17% was approved by the parliament.

The government had raised energy prices and let the currency weaken after the IMF called on Pakistan to scrap subsidies and enable a market-determined exchange rate. Although almost all conditions have been met, a key item that remains is further tightening of monetary policy, said Zubair Ghulam Hussain, chief executive officer at Insight Securities Pvt.

State Bank of Pakistan has raised the benchmark rate by 725 basis points since the start of 2022 to contain inflation that quickened to a 48-year high in January. SBP is scheduled to hold its next policy review on March 16.

What Bloomberg Economics Says...

Pakistan’s inflation is poised to leap above 30% for the first time on record as soon as February. Supply disruptions caused by flooding, and food shortages due to a scarcity of dollars to pay for sufficient imports have driven up prices. Now, steps the government has taken to fulfill IMF aid terms are about to hit consumer prices with full force.

—Ankur Shukla, India economist

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(Updates with secretary’s comments in second paragraph)

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