ISLAMABAD (PEN) : The International Monetary Fund’s (IMF) Resident Chief in Pakistan, Mahir Binici, has highlighted that Pakistan’s growing economic challenges and debt burden are linked to the country’s inability to generate sufficient revenue. Speaking at a conference titled “Retail Reimagined: Innovate, Collaborate, and Thrive,” Binici emphasized that while the formal sector faces a heavier tax burden, many other sectors are not contributing their fair share to the national treasury.
“There is a higher burden of taxation on the formal sector,” said Binici, adding that Pakistan’s fiscal challenges stem from certain sectors not adequately contributing to the nation’s revenue stream.
His comments come as an IMF review mission is set to visit Pakistan in early March to assess the progress of the country’s $7 billion Extended Fund Facility (EFF). The success of this review is vital for Pakistan, as the government may need to seek waivers for not meeting certain IMF conditions. The government, led by Prime Minister Shehbaz Sharif, secured approval for the loan program in September 2024, followed by a $1.02 billion disbursement.
The upcoming review will also involve discussions with the IMF on Pakistan‘s next budget for 2025-26. Both sides will need to reach a consensus on the fiscal direction, or the review process could be tied to the parliament’s approval of the budget.
The IMF’s visit comes at a critical time as Pakistan has seen a shift from a surplus to a deficit in its current account. In January 2025, the country posted a $420 million deficit, a troubling sign for its economy.
Addressing the need for fiscal reforms, Federal Finance Minister Muhammad Aurangzeb pointed out the stark contrast between the retail sector’s significant share in the country’s GDP—19%—and its meager contribution to taxes, which hovers around just 1%. He noted that there are discrepancies between formal and informal sectors, such as in retail, tobacco, and beverages, where formal businesses are left to shoulder a disproportionate tax burden while informal sectors contribute little.
“The salaried, manufacturing, and to some extent services sectors have been facing a disproportionate burden for paying more taxes,” Aurangzeb said. “This cannot go on. Agriculture, retail/wholesale, and real estate will have to step up to ensure sustainable growth.”
The finance minister also highlighted the government’s plans for more robust enforcement against informal and undocumented sectors that are not contributing to the economy. He stressed that the country’s future fiscal health hinges on addressing these inequalities in tax contributions across different sectors.
As Pakistan continues to navigate its economic challenges, the outcome of the IMF review and the government’s ability to implement effective fiscal policies will be crucial in ensuring both financial stability and sustainable growth.
