The PM speaks as the IMF arrives

The promise of tax cuts was a message to businessmen or the IMF?

With the third IMF review for the Extended Fund Facility of $8.8 billion to be accompanied by the  second of the $1 billion Resilience and Support Fund, Prime Minister Shehbaz Sharif’s hint at a reduction in direct taxes, made in his address on Wednesday to the opening session of the two-day Pakistan Governance Session 2026, might be interpreted as a hint that the next budget will be more growth-oriented. His emphasis on the achievement of stabilisation in the last couple of years, with the inflation rate brought down to 7 percent from 35 percent, and the policy rate brought down to 10.5 percent. A cut in direct taxes would act as a stimulus, but the IMF might not approve, in which case it gets shot down. In fact, there have been enough instances of the government taking a step, then having to reverse it because the IMF did not see the government figures as adding up, for it to seem that Mr Sharif might be following a good-cop bad-cop routine, where he would do wonderful things for people, but the IMF wouldn’t let him.

However, this time it has become too deep a matter for Mr Sharif to try anything else. The country’s demographic bulge demands jobs, which can only be generated if the economy is growing. About a fortnight ago, the World Bank President said that Pakistan needed to create about 30 million jobs in the coming decade. If that was not done, he predicted massive migration and political instability at home. The political instability is particularly bad news for the government in office, and the whole-of-government approach Mr Sharif recommended is essential, but perhaps not enough.

The IMF does not try to make economies grow, but as the World Bank chief said, growth had to be a primary policy goal now, not a secondary. The review mission is supposed to ensure that Pakistan is meeting its commitments, but it must also face the changing context. If the IMF does not allow the economy to move onto a growth trajectory, it is not just setting Pakistan up for another crisis needing IMF intervention, but moving the failure of that intervention in terms of unmet conditionalities.