The corporate sector, major bankers and brokers breathed a sigh of relief following the International Monetary Fund’s (IMF) approval of the $7 billion package. However, small businesses, traders and civil society were less enthusiastic, voicing concerns about rising debt, potential misallocations and the negative impact of IMF-guided policies on micro businesses, traders, women and youth.

Ehsan Malik, CEO of Pakistan Business Council, views the 25th Extended Fund Facility as offering solvency and liquidity to address the fundamental flaws but warns that reform implementation will entail greater challenges given past failures. He highlights that the formal sector will bear most of the burden, with the Federal Board of Revenue (FBR) focusing on top taxpayers rather than broadening the tax base.

“While falling inflation, commodity tailwinds, increasing remittances, and declining borrowing costs may benefit the economy, achieving tax targets will be tough without demand recovery.

“Privatisation of the Pakistan International Airlines and expanding the tax base to traders, transporters, and real estate are critical. The reduction of energy costs remains unlikely under the IMF-led approach. The short-term focus may not lead to sustainable solutions,” Mr Malik considered forcing provinces to tax agriculture a positive step.

‘While the IMF programme signals short-term stability, there is no clear progress on reforms that would improve the investment climate’

Khurram Mukhtar, a prominent businessman from Faisalabad and Patron-in-Chief of the Pakistan Textile Exporters Association, expressed concern over the public bearing the burden of government debt. He noted: “While it’s promising that our economic fundamentals are improving, our ultimate goal should be to achieve a trade surplus, live within our means, and completely overhaul governance.”

Malik Mehr Illahi, President of the Khyber Pakhtunkhwa Traders Union, acknowledged the necessity of the IMF deal but expressed scepticism about the effective use of funds. He criticised the government’s strong-arm tactics under the guise of meeting the IMF’s demands. Mr Illahi pointed out the abrupt halt to a survey of traders, after which the government unilaterally imposed tax rates based on traders’ assets rather than actual income, to be an unjust move.

Younus Dagha, former federal secretary and Chairman of the Policy Research and Advisory Council, Karachi Chamber of Commerce and Industry, noted that IMF programmes offer temporary financial relief but lack a sustainable economic plan.

“Without addressing structural weaknesses, they lead to damaging revenue measures, as seen in countries like Argentina and Egypt.” He warned Pakistan faces similarly high energy tariffs, an unjust tax regime, and fiscal indiscipline. “While the IMF programme signals short-term stability, there is no clear progress on reforms that would improve the investment climate.”

M Abdul Aleem, Secretary General, Overseas Chamber of Commerce and Industry welcomed the IMF deal, expecting it to boost confidence among local and foreign stakeholders. He emphasised that reducing inflation and interest rates, increasing tax revenues, cutting energy costs and privatising loss-making state-owned enterprises will improve investor sentiment. He also stressed the need for decisive government actions to ensure Pakistan no longer requires IMF funding in the future.

Arif Habib, founder of Arif Habib Group, emphasised that the IMF deal will boost financial stability, improve liquidity in the banking system, and ease businesses’ access to credit. It will also help stabilise the rupee, reduce depreciation risks, and benefit import-dependent industries.

“Controlling inflation, as seen recently, will restore consumer purchasing power and stimulate demand. Additionally, lower inflation may lead to reduced borrowing costs, easing business operations. The IMF programme is expected to bring structural reforms, improving regulatory frameworks and fostering a more conducive business environment,” he remarked.

Mehnaz Rahman, former director of Aurat Foundation and President of the National Organisation for Working Communities, criticised the government’s reliance on loans from multilateral donors. She urged the government to curtail wasteful civil and military spending and focus on improving governance to better serve people, especially women.

Shahid Sattar, Secretary General, All Pakistan Textile Mills Association, welcomed the $7bn IMF loan for providing stability but highlighted severe challenges for exporters. “The removal of sales tax exemption on local supplies for export manufacturing while imports remain tax-free undermines domestic firms.

Yarn imports have surged, and over 40 per cent of spinning units have shut down. Additionally, the planned gas cut-off to captive power plants by January 2025 is flawed, as they are more efficient and essential for industrial processes. High grid electricity costs further threaten competitiveness,“ he asserted.

Mr Sattar emphasised that the loan won’t resolve Pakistan’s $100bn external liabilities and that only boosting exports through favourable policies can provide a sustainable solution.

Dr Muhammad Amjad Saqib, founder and Executive Director of Akhuwat Foundation, believes the IMF package would only be beneficial if directed towards financial inclusion initiatives. He emphasised the importance of microfinance for small businesses, agriculture financing for farmers with less than four acres holding or the landless, small housing loans, livestock finance and solar financing.

“Such measures would empower the poor to become productive contributors to the economy, reduce poverty, boost national productivity, and promote growth and self-reliance,” he argued.

Published in Dawn, The Business and Finance Weekly, September 30th, 2024