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Economy

Pakistan unveils austerity budget in bid to secure IMF loan

Imran Khan's government looks to raise tax revenues and restore investor confidence

Opposition politicians shout after Imran Khan's governent delivered an austerity budget that targetted a steep increased in tax revenues.   © AP

ISLAMABAD/NEW DELHI (Financial Times) -- Pakistan prime minister Imran Khan's government unveiled an austerity budget as part of a rollout of harsh measures designed to secure a desperately needed IMF bailout and restore investor confidence.

In an address to parliament on Tuesday evening, Hammad Azhar, the junior minister for revenue, outlined an ambitious tax revenue target of 5.55tn rupees ($36.5bn) -- an increase of more than 30 per cent compared to last year -- to balance its 7tn rupee budget.

"Our main objective will be to increase tax collections," said Mr Azhar, adding that only 2m people out of Pakistan's 210m file income tax returns. "In this new Pakistan, we have to reform out tax collection system to move forward."

Projecting the fiscal deficit to be 7.1 per cent for the financial year to June 2020, Mr Azhar said the government wants to increase revenue by imposing a 17 per cent tax on ghee and poultry, and doubling a sugar tax to the same rate.

As he delivered his speech, Mr Azhar was heckled by opposition polticians who held up banners saying "IMF budget is unacceptable".

The budget is part of a rollout of reforms undertaken by Mr Khan's government as it struggles to contain a balance of payments crisis. Gross domestic product expanded by 3.3 per cent this year, well below the target of 6.2 per cent.

Pakistan and the IMF announced a $6bn preliminary loan agreement last month, but it is conditional on Pakistan implementing a series of austerity-driven measures.

Mr Khan, who was elected prime minister last year, has had to postpone his dream of building an Islamic welfare state and has instead overseen government belt-tightening that is set to be a test for his administration.

Pakistan has already increased gas and electricity tariffs and implemented a tax on mobile phone scratch cards, hitting consumers at a time when inflation is hovering above 7 per cent.

Experts questioned whether Mr Khan's government could deliver on its tax drive, given that previous governments have failed to increase revenues. "There is a very ambitious effort this time, whether it will succeed remains to be seen," said Asad Sayeed, a Karachi-based economist.

"What they are trying to do is counter cyclical. If they succeed, they succeed at the expense of further dampening aggregate demand and slowing down the economy," he added. "It's the wrong time to do it, but the pressures are such that they will attempt it. They don't have a choice."

Some Pakistanis expressed concern that the new measures would add further pressure on households that are already feeling squeezed.

"Life has become unbearable since Imran Khan became the prime minister. I don't have money to send my children to school now after paying for food, electricity, gas and clothes," said Mubarak Khan, a taxi driver in Islamabad.

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