Reforms in Pakistan were never designed to succeed amid IMF bailouts: Report
New Delhi, June 20
Pakistan has seen several International Monetary Fund programmes to improve its economy in the past but reforms have failed and the country stares at a bigger economic crisis. The question isn't why reform failed but whether it was ever designed to succeed, argues a new report.
The report in Dawn laments that each IMF programme reaches the same diagnosis - the tax base is too narrow, distortions are too many, and institutions are too weak.
"The IMF prescribes, Pakistan implements, and the programme ends. And then, after a brief interval, another programme begins with the same diagnosis and the same prescription," says the report.
Economist Daron Acemoglu offers the clearest framework for this sort of question.
"In his theory, the puzzle of persistent underdevelopment dissolves once you accept the premise that groups holding political power choose policies, not to maximise aggregate welfare, but to transfer resources from the rest of society to themselves," the report cites the economist as saying.
The set of rules that emerge are inefficient by design, because the groups that benefit from inefficiency are precisely the groups with the power to shape these rules.
Pakistan, examined through this lens, is a classic case study, the report says.
The petroleum levy has become the Pakistan government's main revenue instrument, with the IMF now targeting Rs 1.7 trillion for the 2026 budget.
More alarmingly, this target is in the year when the IMF itself reports the effective tax rate on petroleum products in Pakistan is 166 per cent.
"Two things about this levy deserve more attention than they receive. First, unlike income tax or sales tax, the petroleum levy does not enter the divisible pool, meaning provinces and the populations they serve receive no share of its proceeds. This is a structural choice that concentrates fiscal resources at the federal centre while the costs are borne by everyone who buys fuel, which is everyone," the report highlights.
Moreover, withholding tax from salaries rose sharply, reaching Rs 605.6 billion in 2024-25.
The traders, the landlords, and the large retailers remain largely outside the effective tax net.
"This is not because the state lacks the administrative capacity to reach them, but because they are sufficiently proximate to those who are the decision-makers. The salaried professionals are taxed because they can be," the report reveals.
The fiscal crisis that justifies the levy and excessive tax on salaried class also compels the government to borrow at high rates.
Despite IMF programmes, Pakistan ranks 168th on the Human Development Index, below countries with a fraction of its economic history, endowment and potential.
— IANS
Reader Comments
The IMF keeps prescribing the same medicine while Pakistan's economic doctors keep changing the diagnosis. Until the powerful classes start paying their fair share, these bailouts are just a way to keep the system afloat without fixing the leaky boat.
As an Indian, I can see parallels to our own history with IMF reforms. But the key difference is we had the political will to actually implement tough reforms in 1991. Pakistan needs its own Manmohan Singh moment - someone who can break the elite capture cycle. 🎯
Fascinating analysis. The point about petroleum levy bypassing provincial revenue sharing is particularly telling - it's a structural choice to concentrate power at the center. Pakistan's federalism seems more decorative than functional.
Honest question: why do we in India still care about Pakistan's economy? As a neighbour, their instability affects us too, but their elite seem perfectly happy with the status quo. The salaried class bears the brunt everywhere, even here. Tax the rich, not the middle class! 💪
The Acemoglu framework makes perfect sense here. Pakistan's institutions were designed to protect the elite, not to serve the people. Until the powerful have to pay taxes like everyone else, reforms will remain a circular exercise. Sad to see a country with so much potential stuck in this trap.
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