Prime Minister Nawaz Sharif has promised to widen the tax base, improve the image of paying taxes and limit corruption. ILLUSTRATION: JAMAL KHURSHID
Pakistan is in the grip of its worst energy crisis in modern history which causes power outages up to 20 hours in parts of the country and has hammered industrial output.
During the last five years, GDP has averaged only three percent, far short of the seven percent considered necessary to lift the country out of poverty and fully absorb the growing labour force.
Central bank reserves have fallen to $6 billion, down from $14.78 billion in fiscal year 2010-11 and are enough only to cover imports for one and a half months.
On September 5, the IMF agreed to extend Pakistan a three-year $6.7 billion loan, making an initial disbursement of $540 million available to the authorities.
The loan is aimed at reducing Pakistan's fiscal deficit -- which neared nine percent of gross domestic product last year -- to a more sustainable level and reform the energy sector to help resolve severe power cuts that have sapped growth potential.
But future disbursements are dependent on the completion of tough economic reforms measured at quarterly reviews.
Repairing the economy
In Pakistan, a country of 180 million people, only around 250,000 people pay income tax and agriculture, which still accounts for 50 percent of the economy, is totally exempt.
To repair the economy, Prime Minister Nawaz Sharif has promised to widen the tax base, improve the image of paying taxes and limit corruption.
The IMF said his budget for the fiscal year to June 30, 2014 "represents an important initial step" but cautioned that "a more efficient and equitable tax system is needed".
Austerity will also push down growth. Before Thursday, the IMF predicted growth of 3.5 percent of GDP but has revised that down to 2.5 percent if the necessary reforms are implemented.
In announcing the loan, the IMF said Pakistan's adherence to the programme would likely encourage financial support from other donors.
The Asian Development Bank has this week announced that it will invest $245 million in Pakistan's power distribution systems.
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@non-resident-pakistani: Although as an Indian, I know what is the reason, it will he interesting to hear from a Pakistani - what that core reason is? Not the superficial causes but the Whys behind the Whys.
FBR, Courts, Police and railway are vital institutes for our economy & all institutes are corrupt and dysfunctional. After 3 years our "leasers" will again be begging in front of China USA and finally IMF.
As a non resident Pakistani, I have to be honest. The country is screwed, its gone to the dogs! Please don't ask me why. Everyone knows the reasons.
@gp65: Also the 250k figure is off. I think the real number is around 800k. The sad thing is that this article is by AFP. They should know better. But it seems that Pakistan's reputation is so bad that you can write even factually incorrect articles and no one will question you.
What IMF does not factor in is huge shadow economy of Pakistan that is vibrant and there is lot of buoyancy in it
The real problem is dysfunction FBR and tax collection machinery.The new Chairman is sidelining officers with not good reputation and this may help in future ( ie if the Chairman is not transfered and whole process is reversed)