Reforms are the only solution

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The deteriorating economic conditions of the Pakistan are severely affecting the life of the common people. The figures recently released by Pakistan Bureau of Statistic (PBS) show that the Consumer Price Index (CPI) inflation went up to 35.4 percent on year-on-year basis in March 2023 whereas the same was recorded at 31.5% in February 2023 as compared to 12.7% in 2022.

There are various factors for the substantial rise in the rate of inflation which started with the failure in implementing the conditions related to fiscal reforms agreed with the International Monetary Fund (IMF) under the Extended Fund Facility (EFF) programme. The government signed the programme with IMF on July 3, 2019; however, no efforts were made to implement the basic agreed terms to stop the bleeding of resources necessary to maintain the fiscal discipline rather the focus of the government remained to meet the fiscal targets by raising the consumer products prices, policy rate and imposing new regressive indirect taxes.

Additionally, the unfunded subsidy extended in petroleum products by the coalition government of Pakistan Tehreek-i-Insaf (PTI) to win the sympathies of the public in wake of motion of no confidence at one hand violated the IMF conditions and on the other caused huge loss to the national exchequer.

Initially, the PTI Government opted for the IMF programme that specifically required structural reforms. The government ensured the lender of the last resort that they would implement various agreed steps to ensure good fiscal governance so that the extra burden on the treasury shall be curtailed. However, spending over three years by the PTI government under the leadership of Imran Khan, could not even initiate the implementation process for structural reforms. Though the government introduced Cash Management and Treasury Single Account Rules in 2020, however, they are failed to implement the same.

Similarly, the PTI violated the conditions of Fiscal Responsibility and Debt Consolidation Act of 2005. As reported in the media, the Ministry of Finance told the cabinet that total debt burden of Rs. 11.8 trillion was higher than legally allowed limit of 60% of GDP. It was a clear violation of the debt reduction law. The media further highlighted that the government of PTI had taken the most expensive asset-backed loans in the history of Pakistan by paying 7.95% interest rate on seven-year Sukuk bonds.

Apart from the expensive assets backed loans, the various short terms incentive schemes were introduced to attract the people offering higher interest rates to generate foreign exchange to improve foreign exchange reserves widely known as hot money that also added huge pressure on the economy rather contributing anything positive. The PTI government took these unrealistic measures to maintain foreign reserve level, however, ignored to introduce the agreed reforms.

Subsequently, after the PTI government’s departure due to vote of no confidence, the alliance government of Pakistan Democratic Alliance (PDM) assumed the power on April 10, 2022. Though they worked on revival of IMF programme, however, their aggressive measures to undo the violative actions of the PTI government to meet the lender’s conditions triggered the inflation and stagnation—better known as stagflation. The PDM government was forced to follow the IMF’s conditions of raising the petroleum products by over Rs. 100, imposing Petroleum Levy of Rs. 20 and raising of electricity prices and depreciation of the Pak Rupee to compensate the damage. Unfortunately, these strict measures burdened the already economically struggling entities and individuals. Additionally, the devastating floods of 2022 in the wake of unprecedented rains added fuel to the fire and caused huge losses of about US$ 30 billion to the struggling economy.

The unceremonial departure of Miftah Ismail as a Finance Minster after revival of IMF programme and return of Muhammad Ishaq Dar as fourth-time finance minister of Pakistan could not bring any visible relief for the public. Ishaq Dar, before taking the charge was a staunch critic of various conditions agreed by the PIT and Miftah Ismail with the IMF. He was not supporter of market determined exchange rate and also not happy with the powers delegated by the PTI government to the central bank of Pakistan by amending the State Bank of Pakistan Act, 1956.

Ishaq Dar expressed the same view in the recent meeting of Senate Committee on Finance and Revenue by stating that the amendments made by the previous government of PTI in the State Bank Act were against the sovereignty and hence simply unacceptable. He added that the State Bank of Pakistan (SBP) is country’s bank and not of some other country. He told the Senate Committee that the amendments to the same Act were in the process and had yet not been finalized. This shows that Ishaq Dar is not comfortable with the conditions agreed with the IMF. Though he tried to revive the IMF programme and agreed to depreciate the value of rupee against the dollar, being a finance minister, however, could not convince the lender of last resort to sign staff level agreement.

Ishaq Dar on various occasions complained that “we are victim of geopolitics” and that despite meeting all the conditions of the IMF, “it is unfair that they are not ready to close the Ninth Review”. However, despite stalled IMF programme, he successfully managed to fiscal imbalances and so far, Pakistan’s external debts have decreased close to US$5 billion dollars. He claimed that we were successfully paying our foreign debts and there was no risk of default.

The current budget presented by Ishaq Dar with total outlay of Rs. 14.46 trillion sparing Rs.1150 billion for development programme with revenue collection target of Rs. 9.2 trillion appears unsustainable. However, the IMF called it a missed opportunity. They have raised concerns regarding the non-existence of measures for broadening of tax base, new tax expenditures that as per lender reduce the fairness of the tax system, and tax amnesty scheme under section 11(4) of the Income Tax Ordinance, 2001, which the lender considers a clear violation of the IMF conditions.

The representative of IMF has claimed that the lender of last resort is ready to work with the government to refining the budget before its passage adding that “the country still has a chance to revive the IMF’s 9th Board Review”.

The fate of the Ninth Review is not clear yet, however, due to fiscal tightening, the citizens of Pakistan will keep facing the wrath of flawed economic policies of the rulers. Additionally, the continuous interference by the few people at the highest position in the powerful institutions is adding further miseries in strengthening economy as well as democracy.

Though there is no hope for immediate relief to the common citizens, yet the long-term strategy and agreed reforms to improve fiscal issues is the only solution. The government should focus on improving its privatization laws and its mechanism to expedite the process of getting rid of loss-bearing state-owned entities. The government should also focus on expediting the agreed measures to reduce the circular debt and reform the energy sector. The electricity theft and line losses are the biggest issues that need to be addressed as soon as possible and smart meter as agreed with the lender is the best option to deal with both issues. Pakistan should also focus on financial inclusion and documenting the economy. Moreover, without designing and implementing labour laws in line with the international best practices, we cannot bring any change in the life of the people living below the poverty line. These measures are the only possible solution to bring any real change in the life of ordinary citizens.


Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation.  He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical ReviewTowards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales TaxLaw and Practice of Corporate LawLaw & Practice of Federal ExciseLaw & Practice of Sales Tax on ServicesFederal Tax Laws of PakistanProvincial Tax LawsPractical Handbook of Income Tax, Tax Laws of PakistanPrinciples of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

He is author of Commentary on Avoidance of Double Taxation Agreements signed by PakistanPakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, investment companies, money service businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).The recent publication, coauthored with Huzaima Bukhari is:

Pakistan Tackling FATF: Challenges & Solutions

available at:  and

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached on Twitter @DrIkramulHaq.