The International Monetary Fund (IMF) has asked Pakistan to cut defense spending to revive a stalled loan program. Important changes, including a reduction in defense pensions, have been proposed by IMF representatives currently in Pakistan.
The annual pension cost of defense sector personnel is over Rs 400 billion. It was shown as civil expenditure in the post-Government budget of General Pervez Musharraf. Currently, 26 percent of Pakistan’s national budget is spent on defense.
Other recommendations by IMF representatives include a petroleum levy hike, a flexible exchange rate, new taxes to cover the revenue shortfall, and higher electricity and gas tariffs.
It is reported that the Pakistani economy will experience a 30 percent increase in electricity prices and a drastic increase of 60%-70% in gas prices. Inflation is estimated to increase to 5% to 10% from the current 35% to 40%. The government has immediately increased the price of petrol and diesel by Rs.
With the changes announced from February 1, it is estimated that the government will receive an additional Rs 4.5 billion within three days. The government has increased the Petroleum Development Levy (PDL) on high-speed diesel (HSD) by Rs 5 per litre, so the PDL is now Rs 40 per litre. 10 per liter is still available to the government. It will be increased in the coming weeks and months, taking the PDL to Rs 50 per litre.
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The IMF is also likely to ask the government to impose petrol sales tax as proposed by the FBR to the finance ministry. 2,000 billion (Rs 2 trillion) breached the budget estimates for 2022-23 by the IMF in its preliminary assessment. Following this, the IMF also proposed additional tax measures of Rs 600 billion through a mini-budget.
The IMF had also asked the Sri Lankan government to downsize the armed forces within a year to manage public expenditure. According to the Sri Lankan Defense Ministry, the Sri Lankan Army will shrink from 180,000 to 135,000 by next year. By 2030, this will drop to 100,000. Sri Lanka’s 2023 budget allocation of Rs 539 billion for defense has also drawn criticism from the IMF.
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