IMF says Pakistan needs to mobilize tax revenue, cut debt

Khan’s government, like many of its predecessors, has been forced to turn to the IMF to prevent a balance-of-payments crisis. (File photo: Reuters)
Updated 22 July 2019

IMF says Pakistan needs to mobilize tax revenue, cut debt

  • Khan’s government faces mounting pressure as rising prices and tough austerity policies

WASHINGTON: Pakistan needs to mobilize domestic tax revenue to ensure funds for social and development programs, while reducing debt, the acting director of the International Monetary Fund said on Sunday after a meeting with Pakistani Prime Minister Imran Khan.
The two officials discussed recent economic developments and implementation of Pakistan’s IMF-supported economic reforms, which are aimed at stabilizing the economy, strengthening institutions and paving the way for sustainable and balanced growth, David Lipton said in a statement.
Khan’s government faces mounting pressure as rising prices and tough austerity policies under Pakistan’s latest bailout from the IMF are squeezing the middle class that helped carry it to power.
Lipton said the IMF and other international partners were working closely with the Pakistani government to support implementation of the reforms.
“I highlighted the need to mobilize domestic tax revenue now and on into the future to provide reliably for needed social and development spending, while placing debt on a firm downward trend,” Lipton said in a statement after the meeting.
Khan, who arrived in Washington on Sunday, is due to meet with US President Donald Trump at the White House on Monday. Trump is likely to press Khan for help on ending the war in Afghanistan and fighting militants.
Last year, Trump cut off hundreds of millions of dollars in security assistance to Pakistan, accusing Islamabad of offering “nothing but lies and deceit” while giving safe haven to terrorists, a charge angrily rejected by Islamabad.
In recent years, import-led consumption has propped up growth in Pakistan and helped hide the problems of an economy riddled with inefficiency and without a strong export base.
But Khan’s government, like many of its predecessors, has been forced to turn to the IMF to prevent a balance-of-payments crisis.
Economic growth, which reached 5.5% in the fiscal year to June 2018, is expected to slow to 2.4% this financial year, according to IMF estimates, barely enough to keep pace with the growth in a population that now numbers 208 million.


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.