Pakistan's new government open to curbing fuel subsidies and ditching business tax amnesty

Finance Minister Miftah Ismail says he had 'good discussions' with the IMF on a visit to lender's annual spring meetings

Some targeted subsidies should remain for Pakistan's poorest as consumer prices increase, says Finance Minister Miftah Ismail. EPA
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Pakistan's new finance minister on Friday agreed with International Monetary Fund recommendations to cut fuel subsidies and end a business tax amnesty scheme, pledging to pursue structural reforms to repair a damaged economy.

The IMF in 2019 approved a $6 billion loan over three years for Pakistan but disbursement has been slowed by concerns about the pace of reforms.

Finance Minister Miftah Ismail, who took office this month after a previous government lost a no-confidence vote, said he had “good discussions” with the IMF on a visit during the Washington-based lender's annual spring meetings.

“They've talked about removing the subsidy on fuel. I agree with them,” Mr Ismail, himself a former IMF economist, said at the Atlantic Council.

“We can't afford to do the subsidies that we're doing. So we're going to have to curtail this,” he said.

He said that former prime minister Imran Khan, seeking to avoid removal from office, set a “trap” for his successors through heavy subsidies on fuel and electricity, as well as a tax amnesty scheme for businesses — measures that derailed a disbursement from the IMF loan.

“He gave an amnesty to businesses for setting up factories so that they don't have to pay taxes, or even if they evaded taxes that's OK,” Mr Ismail told reporters at an event organised by Pakistan's embassy.

But Mr Ismail said that some subsidies should remain for Pakistan's poorest as consumer prices soar.

The country's new Prime Minister Shehbaz Sharif has vowed to jump-start a moribund economy, certain to be a major issue in elections next year.

Pakistan has repeatedly sought international support and suffers from a chronically weak tax base.

Mr Ismail said that Pakistan, the world's fifth most-populous nation, needed to move to a new economic model by removing obstacles and promoting exports to the world.

“We have such an elite-benefiting country that almost every subsidy that you can speak of actually goes to the richest people,” he said.

Mr Ismail said his immediate goal was reining-in double-digit inflation, a target complicated by ending fuel subsidies, and kick-starting job creation.

He denied Pakistan was in danger of defaulting on its debts, with foreign reserves currently standing at $10bn, and much of its bilateral debt held with friendly countries China, Saudi Arabia and the UAE.

Mr Sharif has little over a year before he has to call a general election, leaving observers wondering if removing Mr Khan will backfire, since his government inherited an economic crisis that will take time to overcome.

But Mr Ismail said there was “never a wrong time to do the right thing".

“If what we claim is true, and we are actually more competent, then we should be able to make a difference in a few months. And if we don't, we'll be thrown out by the people, which is fine.”

Updated: April 23, 2022, 1:17 PM