Pakistan is now battling what is being estimated as the worst economic crisis ever witnessed by the country, an English-language newspaper The News Internation reported. As per the report, the country is facing mounting foreign debt which will make it liable to require gross external financing of USD 51.6 billion within a two-year period in order to fulfil its needs.
Within the two year period, Pakistan’s gross external financing requirement stands at USD 23.6 billion in 2021-22 and USD 28 billion in 2022-23, in spite of the Internation Monetary Fund’s cautious estimates.
To dispel the increasing risk of the crisis, Pakistan authorities are now in the works to make a last desperate attempt to reach a staff-level agreement with the IMF to tide over the external financing requirements.
The News International also reported that if the authorities are unsuccessful in striking a deal with the IMF under its current USD 6 billion Extended Fund Facility (EFF) during the ongoing discussions in Washington, this increasing gross external financing requirement will be further put at risk with the subsequent suspension of program loans from other multilateral creditors such as the World Bank (WB) and Asian Development Bank (ADB).
Recent analysis reports by the World Bank revealed that Pakistan is now one of the top ten nations with the highest foreign debt in the world. The reports also disclosed that the country’s foreign debt increased by over 8 per cent this year. Moreover, it suggested that the Imran Khan-led government had borrowed USD 442 million from the World Bank.
For now, the WB and the ADB will continue to lend project loans to Pakistan, but due to the decreased capacity of the country to implement such projects, the loan amount will be bleak. Furthermore, The News International reported that The credit rating agencies are expected to further lower the country’s ratings, making the generation of funds through the issuance of international bonds more costly.
Officer sources have stated that keeping in mind the country’s economic instability, the IMF had advised Pakistan to remove the distortions into the taxation system, pointing out that different GST exemptions and rates should be aligned with the standard rate of 17 per cent.
According to the recommendations made by the IMF, the standard GST rate of 17 per cent should be imposed on Petroleum Oil Lubricants (POL) products in the country. Similarly, the GST rate on fertilizer, tractors and other items should also be brought at the standard rate of 17 per cent.
However, Pakistani authorities are resisting such recommendations, claiming that it would further marginalize the neglected agriculture sector in the country.