Pakistan’s tax-heavy budget likely to land IMF bailout, but stoke tensions

A Pakistani shopkeeper waits for customers in the main wholesale market in Karachi, Pakistan, Tuesday, June 11, 2024. (AP)
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Updated 14 June 2024
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Pakistan’s tax-heavy budget likely to land IMF bailout, but stoke tensions

  • Coalition government of PM Sharif does not have the luxury of a parliamentary majority to help it pass the budget smoothly
  • Pakistan has set challenging tax revenue target of $47 billion for the year starting July 1, near-40% jump from current year

ISLAMABAD: Pakistan’s plan to raise taxes in its 2024-25 budget and boost state revenues will help it win approval from the International Monetary Fund for a loan to stave off another economic meltdown, but could fuel public anger, a former finance official, experts and industrialists said. 
The South Asian country has set a challenging tax revenue target of 13 trillion rupees ($47 billion) for the year starting July 1, a near-40 percent jump from the current year, and a sharp drop in its fiscal deficit to 5.9 percent of GDP from 7.4 percent for the current year.
Pakistan had to reduce its fiscal deficit as part of negotiations with the IMF, with which it is discussing a loan of $6-8 billion, as it seeks to avert a debt default for an economy growing at the slowest pace in the region.
“The budget is enough to get an IMF Programme, as long as ... the budget is passed in the way it is presented,” former finance minister Miftah Ismail said. But he said the revenue targets will be challenging, as will the growth target of 3.6 percent.
“The two cannot happen simultaneously,” said Ismail, who as then-finance minister successfully negotiated the revival of Pakistan’s last Extended Fund Facility (EFF) program in 2022.
Outside analysts largely concur. 
Emerging Market Watch’s Metodi Tzanov believes the budget in its current form should be acceptable to the IMF.
“The government ticked almost all the right boxes to comply with IMF conditions, including withdrawal of tax exemptions, raising corporate tax for exporters, increasing the personal income tax rate, tightening the noose around non-filers, and hiking fuel tax,” he said.
But some said the IMF might baulk if it saw the tax target as unrealistic.
Finance Minister Muhammad Aurangzeb, who presented the budget for the first time, said he expected to seal a Staff-Level Agreement with the IMF in July.
The IMF did not immediately publicly comment on the budget and did not respond to questions sent by Reuters.
The big rise in the tax target is made up of a 48 percent increase in direct taxes and 35 percent hike in indirect taxes. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64 percent.
Taxes have notably been slapped on previously protected export-oriented sectors such as textiles, which consistently make up over half of Pakistan’s exports, and whose receipts keep a persistently high external account deficit in check.
The representative body for the sector, All Pakistan Textile Mills Association, called for a review of the budget, terming it “extremely regressive” and one that “threatens the collapse of the textile sector and its exports.”
It warned of “dire consequences for employment and external sector stability, as well as for overall economic and political stability and security.”
The Pakistan Business Council also called for budgetary measures to be reconsidered.
“The budget prioritizes securing another IMF EFF but lacks innovation for domestic economic growth,” said Musadaq Zulqarnain, director at the Pakistan Textile Council and chairman of Interloop, one of Pakistan’s largest textile manufacturers.
The coalition government of Prime Minister Shehbaz Sharif does not have the luxury of a parliamentary majority to help it pass the budget smoothly.
Sticking to the reform measures will require it to resist pushback from key economic sectors as well as a broader public already angry at the prospect of further price rises.
Sharif’s party had to convince its largest ally, the Pakistan Peoples Party (PPP), without whom it does not have a majority, to attend the budget session in parliamentary. PPP said it was not happy with some of the measures.
But analyst Yousaf Nazar, formerly of Citibank, believes the protestations are just political posturing. “(PPP) won’t rock the boat,” he said.
With few options in the short term to support Pakistan’s recent stability, an IMF program appears crucial.
Increasing the tax base in an economy where proper documentation is often lacking will require considerable time and effort. Pakistan’s undocumented parallel economy is huge and 44 percent of its nominal GDP does not contribute significantly toward direct tax revenue, according to the Tola Associates, a tax firm.
Traders and agriculturalists in particular, both politically influential, have resisted the government’s push to register themselves and document their sales.
“If the tax base is not going to increase, moving forward, the country’s tax revenues growth can drop further and it might end up as a dead weight loss to the economy,” Tola Associates said in a note.
“The real challenge is that of implementation,” said former central bank chief and Managing Director at Alvarez & Marsal Reza Baqir.
“For example, the budget targets an ambitious increase in the tax-to-GDP ratio. Many previous budgets have similarly targeted ambitious improvements. I would hope that the lessons from why those ambitions were not realized have been reflected in this budget.”


Ex-PM Khan’s party rules out coalition with Peoples Party, says no-trust vote always an option

Updated 12 July 2024
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Ex-PM Khan’s party rules out coalition with Peoples Party, says no-trust vote always an option

  • Barrister Gohar Khan says PTI took ‘principled stance’ by refusing to form government with PPP in February
  • He says PTI will determine its course of action after getting reserved seats in national, provincial legislatures

ISLAMABAD: Former premier Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party announced on Friday it had no plans to form a coalition government with the Pakistan Peoples Party (PPP), though it reserved the option of bringing a no-confidence motion against the sitting Prime Minister Shehbaz Sharif.

The statement was issued by the current PTI chairman, Barrister Gohar Khan, after securing a major legal victory in the Supreme Court in a case involving the reserved seats for women and minorities in the national and provincial assemblies, which are distributed among winning political factions on a proportional basis.

The PPP decided to support the ruling Pakistan Muslim League-Nawaz (PML-N) party after the February 8 general elections, though it did not join the federal cabinet, creating the impression that it was interested in keeping its political options open.

“If we had to form a government with the Pakistan Peoples Party, that option was available to us on February 9,” he told Independent Urdu in an interview. “We took a principled stance. Imran Khan does not believe in power-sharing. He practices people’s politics, so he does not need power-sharing.”

He maintained that his party was not against political dialogue, though its founding leader and the former Pakistani prime minister had ruled out any negotiations with the PPP, PML-N and Muttahida Qaumi Movement (MQM).

Asked about the no-trust vote after emerging as the single largest party in the National Assembly, the PTI chairman said the proposal had not come up for discussion, though it was always an option that political parties could exercise.

“Once we get the seats and come into the majority, we will see what needs to be done,” he said. “This issue can come under consideration since any political party always has this option. However, the party leadership has not made any decision regarding this matter yet.”


UN report says Kabul assisting Pakistani Taliban, Afghanistan’s ‘largest terrorist group’

Updated 12 July 2024
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UN report says Kabul assisting Pakistani Taliban, Afghanistan’s ‘largest terrorist group’

  • UN report says Kabul assisting Pakistani Taliban, Afghanistan’s ‘largest terrorist group’
  • It maintains the ongoing collaboration between TTP and Al Qaeda can transform the former into ‘extra-regional threat’

ISLAMABAD: The United Nations described the proscribed militant network Tehreek-e-Taliban Pakistan (TTP) as the “largest terrorist group” in Afghanistan this week, confirming Pakistani officials’ assertions the current Afghan administration is harboring the group and facilitating its cross-border attacks.

In November of last year, Pakistan issued a strongly worded statement against the Kabul administration, reporting a 60 percent increase in militant violence and a 500 percent surge in suicide bombings since the Taliban’s return to power in 2021.

Former caretaker Prime Minister Anwar-ul-Haq Kakar said there was evidence the Afghan Taliban were “facilitating” such attacks, despite repeated requests from Pakistani authorities to prevent their soil from being used against any state. He noted that 15 Afghan nationals were involved in suicide attacks in Pakistan while 64 had died in clashes with Pakistani law enforcement.

Pakistan also launched a deportation drive against “illegal immigrants,” primarily Afghans, citing security concerns.

“Notwithstanding continuing assertions by the Taliban that there are no foreign terrorist groups in Afghanistan other than ISIL-K [Islamic State of Iraq and the Levant, Khorasan chapter], Member States reported that over two dozen groups still operate in the country, enjoying freedom of maneuver under the de facto authorities with oversight from the General Directorate of Intelligence,” said the report by the UN Sanctions Monitoring Team released on Wednesday.

“TTP remained the largest terrorist group in Afghanistan, with an estimated strength of 6,000–6,500 fighters,” it continued. “One Member State expressed concern that greater collaboration between TTP and Al-Qaida could transform TTP into an ‘extraregional threat.’“

It said that Al Qaeda’s training had resulted in TTP shifting tactics and highprofile attacks against hard targets.

The report highlighted weapon transfers to TTP as well as the release of Daesh prisoners from local jails after securing their consent to join the banned Pakistani militant network.

“One Member State detailed how the Taliban exerts pressure on TTP through funding, reportedly providing 3.5 million afghanis ($50,500) on a monthly basis to TTP leader Noor Wali Mehsud ... while also directing him to garner additional sources of revenue from donors,” it added.

The UN document said the Afghan Taliban remained concerned that excessive pressure might push TTP towards collaboration with Daesh.

It acknowledged that TTP had intensified attacks against Pakistan, “significantly increasing from 573 in 2021 to 715 in 2022 and 1,210 in 2023, with the trend continuing into 2024.”

The report also noted that advanced military equipment, especially night vision devices transferred to TTP after the Taliban takeover, had added lethality to the groups attacks against Pakistan’s military border posts.

“Despite current stability, Afghanistan will remain a source of insecurity for Central Asia and the region in most scenarios,” it added, questioning the ability of the Taliban administration to with complex governance challenges in Afghanistan.


Heavy rainfall deluges Pakistan’s cultural capital, Lahore, as authorities ramp up relief efforts

Updated 12 July 2024
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Heavy rainfall deluges Pakistan’s cultural capital, Lahore, as authorities ramp up relief efforts

  • Pakistan’s disaster management body has forecast heavy rains and flash floods for the next two days
  • Lahore division’s top administration official visited different parts of the city to monitor the situation

ISLAMABAD: Heavy rainfall lashed Pakistan’s eastern city of Lahore on Friday, said a senior district administration official, as provincial authorities stepped up relief efforts to manage the aftermath of the intense downpour.
Known as the cultural capital of Pakistan, Lahore is famed for its historical buildings and a blend of old and new localities. The city has experienced significant flooding in the aftermath of heavy rains in the past, with people complaining of waterlogging in streets and heavy traffic congestion.
“Today maximum of 247mm [millimeter] rain is recorded while dozens of Lahore areas received more than 120mm rain in a very short period,” Lahore Commissioner Zaid Bin Maqsood was quoted by his office in a social media post. “All machinery and human resources are working in full swing [to clear rainwater].”

The post added that he visited various areas of the city to monitor the water removal efforts by the Water and Sanitation Agency (WASA).
Radio Pakistan also reported that Punjab Chief Minister Maryam Nawaz was also monitoring measures to drain rainwater “in all districts of the province.”
She held a meeting about the situation, instructing relevant officials to stay in the field and deal with waterclogging in their respective areas.
Earlier in the day, Pakistan’s National Disaster Management Authority (NDMA) warned of heavy rains and flash floods in the upper and central parts of the country for the next two days.
The NDMA cautioned about urban and flash flooding in local water streams and river tributaries if the rainfall exceeds 50-100 millimeters, urging residents of Lahore and other cities to take precautionary measures and directing local authorities to closely monitor the situation.
According to WASA, the first spell of rainfall in Lahore occurred from early morning until the afternoon, recording 315mm of rain in Tajpura, 170mm at Lakshmi Chowk, 162mm at Nishter Town, 155mm at Chowk Nakhuda and 153mm in Samanabad.
Earlier this year in April, heavy rains triggered landslides and flash floods across Pakistan, resulting in 92 deaths and 116 injuries.
Punjab province reported 21 deaths from lightning and roof collapses, while Balochistan province reported at least 15 deaths from torrential rains.


Imran Khan demands election commissioner’s resignation after landmark Supreme Court verdict

Updated 12 July 2024
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Imran Khan demands election commissioner’s resignation after landmark Supreme Court verdict

  • Court says ECP misconstrued election symbol judgment and forced PTI candidates to contest Feb. 8 polls independently
  • Imran Khan calls for treason charges against people who ‘disenfranchised millions’ of his party voters and supporters

ISLAMABAD: Former prime minister Imran Khan on Friday demanded Chief Election Commissioner Sikandar Sultan Raja and his top team to resign, following a Supreme Court decision criticizing them for misconstruing one of its verdicts and forcing candidates of Pakistan Tehreek-e-Insaf (PTI) party to contest the Feb. 8 polls independently.
The apex court upheld the Election Commission of Pakistan’s (ECP) decision to strip the PTI of its electoral symbol, the cricket bat, for holding intra-party elections that were deemed to be flawed and not in keeping with its constitution.
Subsequently, the ECP rejected the nomination papers of PTI candidates, who were listed as independents with individual electoral symbols.
The court decision that came just weeks before the general elections significantly impacted PTI’s ability to present a united front and contest the national polls with full preparation.
“I have repeatedly raised concerns about the prejudice exhibited by the Chief Election Commissioner of Pakistan against me and PTI,” Khan said in a social media post. “Today’s Supreme Court decision – establishing the ECP’s bias and malafide against PTI – reinforces our stance.”
“We demand criminal proceedings under Article 6 of the Constitution [that deals with treason] against all those responsible for disenfranchising millions of voters and supporters of Pakistan’s largest political party,” he continued. “Sikandar Sultan Raja and the ECP members must resign immediately!”

The former PM, who remains incarcerated on a number of charges since his arrest last August, reiterated that he wanted Chief Justice Qazi Faez Isa to distance himself from all the cases involving him or his party.
The Supreme Court delivered a landmark 8-5 verdict, saying the PTI party was eligible for these seats in parliament.
The short order made it clear the denial of the election symbol did not affect in any way PTI’s right to be a political party or participate in elections.
Reading portion of a minority verdict, Chief Justice of Pakistan Qazi Faez Isa noted the ECP had ‘misinterpreted’ the court’s earlier verdict related to PTI’s election emblem.
“The ECP by misinterpreting the judgment of this Court dated 13 January 2024, which was regarding non-holding [of] intra-party elections in PTI, wrongly mentioned the said candidates of the PTI as independents in Form 33 of the Election Rules,” he said. “The ECP had no authority to declare validly nominated candidates of a political party to be independent candidates.”
The PTI is currently entitled to around 23 reserved seats in the National Assembly, which does not affect the parliamentary majority of the Sharif-led coalition administration.
Political parties are allocated a total number of 70 reserved seats, including 60 for women and 10 for non-Muslims, in proportion to the number of seats won in general elections. This completes the National Assembly’s total 336 seats.
A simple majority in Pakistan’s parliament is 169 out of 336 seats.


Pakistani Taliban deny plans to attack public places during Muharram amid security alerts

Updated 12 July 2024
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Pakistani Taliban deny plans to attack public places during Muharram amid security alerts

  • Spokesperson Mohammad Khorsani says striking public places neither permissible nor aligned with TTP’s objectives
  • The TTP claimed responsibility for several deadly attacks in the past, including the massacre of 134 school children

ISLAMABAD: A proscribed militant network, Tehreek-e-Taliban Pakistan (TTP), on Friday responded to recent security alerts issued by state agencies about its plans to launch attacks during Muharram, the first month of the Islamic calendar, saying that targeting public places was neither permissible nor aligned with its objectives.

The TTP, also known as the Pakistani Taliban, claimed responsibility for some of the deadliest attacks in Pakistan since its formation in 2007, including the massacre of 134 children in a school attack.

Pakistan has accused the interim Taliban administration in Kabul of providing sanctuary to TTP leaders and facilitating their attacks. Although the two groups are not directly affiliated, the Pakistani Taliban owe allegiance to their Afghan counterparts.

Pakistan has historically experienced sectarian violence during Muharram, a significant month for Shia Muslims who observe mourning rituals to commemorate the martyrdom of the Prophet Muhammad’s (PBUH) grandson in the Battle of Karbala.

“We consider it necessary to clarify that not only during Muharram but at any time, we do not consider it permissible to attack public places nor is it among our goals,” TTP Spokesperson Mohammad Khorasani said in a statement on Friday.

“Such fake threats and statements attributed to us have nothing to do with us,” he added, referring to the security alerts circulated by Pakistani law enforcement agencies.

Khorasani blamed the state for spreading fear among people by saying the TTP wanted to launch attack in Muharram.

“Our objectives are clear and pre-announced, which do not include targeting any group, sect or individual based on religious and intellectual differences,” he added.

Since 2007, Pakistan has conducted multiple military operations against the TTP, yet the militant network continues its attacks, primarily targeting the two western provinces bordering Afghanistan.

These attacks have surged since November 2022, following the collapse of a fragile truce brokered by the Afghan Taliban between Islamabad and the TTP.