ISLAMABAD (AP) — Cash-strapped Pakistan sharply increased taxes on natural gas Tuesday to comply with a long-stalled financial bailout, and both industrial and everyday consumers were expected to feel the pain.
The government’s bid to revive a $6 billion bailout from the International Monetary Fund led it to hike taxes on natural gas for domestic and industrial consumers from 16% to 112%, shocking many Pakistanis who already are struggling. A similar increase in the price of electricity is expected to be announced this week.
“The prices of cooking oil and all food items have doubled in the past less than one year, but there has not been any increase in our income,” said Zameen Gul, 32, a father of three who works for a construction company in Peshawar. “I don’t know how we are going to survive.”
Pakistan is struggling with instability stemming from an economic crisis, last summer’s devastating floods and a recent surge in violence. A critical $1.2 billion portion of the 2019 bailout has been stalled since December, with the IMF urging Pakistan to raise more cash.
The tax hike on natural gas Tuesday is likely to further increase the cost of production and an increase in already spiraling inflation, experts said.
“Pakistan’s economy is currently like a rudderless ship, which is heading for a crash,” said Ashfaq Ahmad, a Pakistani economist who has advised the government in the past.
Ahmad has been a critic of seeking bailouts from the IMF, but he said in these circumstances Pakistan had no other option.
“The government will have to impose new taxes and poor people will pay a heavy price for the bad policies of past governments which mostly relied on the IMF loans,” he told The Associated Press.
Miftah Ismail, a former Pakistani finance minister, said the next six-to-eight months will be difficult for Pakistan but the country could, at some point, back away from the brink of default.
Pakistan agreed in 2019 to impose new taxes of 170 billion rupees in exchange for a bailout. Finance Minister Ishaq Dar this week told reporters that he expected the IMF to release the stalled $1.2 billion tranche from the deal.
Pakistan’s foreign exchange reserves have fallen to below $3 billion, forcing the country to further tighten controls on imports of raw materials for the industrial sector. The crisis has caused some factories to close in recent weeks and others to lay off employees.
Dar met with President Arif Alvi to brief him about his recent talks with the IMF. According to a statement from Alvi’s office Tuesday, the government wants to impose new taxes through an ordinance but he advised Dar that the government should convene parliament to discuss new taxes necessary to get IMF bailout.
Amjad Ali, a 45-year-old rickshaw driver in Lahore, said he was unhappy with the performance of former premier Imran Khan because under his government prices skyrocketed. But things have not gotten easier or more affordable, he said.
“The current government of Shahbaz Sharif is worse than Imran Khan’s government,” he said.
Khan was ousted in a no-confidence vote in parliament in April, and he has blamed a U.S. plot against him — which Washington denies. Khan has also warned that Pakistan is on the brink of default.
Sharif says the country’s economy was badly hit by last summer’s devastating floods that killed 1,739 people and caused billions of dollars in damage. Economists predict Pakistan’s inflation rate of 26% could jump to 40% because of the new taxes. But they fear the inflation rate will jump to more than 60% if Pakistan fails to get the IMF loan.
Dar, the finance minister, hopes a revival of the loan will spur friendly countries to open their wallets. He insisted that the government will impose new taxes in such a way that the poor are not affected, but economists say the poor will be the hardest-hit victims.
About 21% of Pakistan’s 220 million people live in poverty, according to the Asian Development Bank. The majority are low- and middle-income, and less than 10% are wealthy elites.