IMF Deal Imminent
After much delay and speculation, on Tuesday the government announced a broad agreement with the IMF on the next year’s budget that has seen its size increased to Rs9.9 trillion. This increase has come about as the government agreed to reintroduce tax on people earning up to Rs100,000 and a petroleum levy from July 1 onwards. Given how uncertainty and anxiety was mounting over the revival of the IMF deal, this news will definitely help calm a lot of nerves as this was desperately needed to instill some sense of stability to the economy.
The decisions regarding the petrol levy and re-introduction of tax on the salaried class will be hard to cope with in the short term, especially as the fuel prices will go higher, but this is still a good deal that the government is close to securing with the IMF. The coalition government has put its political capital on stake and has pushed through tough decisions for the betterment of the economy. Now, the coalition has a year to illustrate the benefits of the hard choices it has had to make.
Considering how the common man is disproportionately feeling the burden of the economic crisis, it is good to see that the two sides have gradually impose Rs50 per litre petroleum levy—the first tranche of Rs10 per litre from July and then Rs5 per litre from August onwards until it reaches the maximum threshold of Rs50 per litre by March 2023. The government has also decided to impose an Income Support Levy on people and companies earning Rs150 million a year and above.
Even though this broad agreement is short of a staff level pact, it should still help soothe markets and bring to an end a four-month long period of uncertainty that caused the currency to depreciate, unleashing a wave of inflation and eroding the confidence of markets and investors.
Moving forward, the government has to focus on the path of recovery by facilitating industries—especially those contributing to exports—and addressing the issues plaguing the agricultural sector. It is imperative that salaries are also increased going forward considering the decrease in purchasing power and resulting fall in demand. In order to get the economy back up on its feet, efforts will have to be focused on boosting consumption and production. The road to recovery is going to be a long one.