PM’s Commerce Adviser Razak Dawood has welcomed the $5 billion investment in the textile sector, which was announced by an industry source recently, saying that the 100 new units expected to be established would generate 500,000 jobs. This is certainly good news for the government, with Mr Dawood in a statement on Thursday ascribing it to the success of the government’s ‘Make in Pakistan’ policy. However, while this will enhance textile exports, which have already increased 29 percent year-on-year in the first two two months of the year, and while the mills would represent a major increase in the sector, which has about 400 mills at present, the government would welcome the expansion in employment, which has not been happening so far, even though it was an important part of the PTI platform in the last election.
However, that was the good news. The bad news is that the IMF has demanded an end of income tax and sales tax exemptions, demanding an additional Rs 225 billion in taxes, not to mention the demand for an increase in the electricity tariff to address the circular debt issue. It made these demands in the technical talks on the resumption of the Extended Fund Facility. With a final decision in the policy talks in Washington in mid-month.. The IMF wants a reversal of income tax exemptions, presumably including those granted in the last Budget. The IMF has got such a narrow vision that it wants a reversal of the measures taken to reduce imports, because they cause a decline in tax revenue,especially from sales tax. This is despite the government imposing restrictions on imports because of a dire current account situation.
The problem the government faces is that these steps are inflationary, and the brunt will fall on the common man, already hard pressed by rising prices of not just food and other items of daily use, but also fuel and utilities. With the government preparing to head into an election in less than two years, it cannot really afford to take the battering of its image that the IMF seems likely to deal it. However, does it really have any choice except perhaps for some minor adjustments?