Pakistan Debt Crisis: Tax Hikes Likely To Flare Inflation, Warn Experts. Check Latest Food Prices

Pakistan's inflation is likely to surge further as the cash-strapped nation will impose new taxes of 170 billion rupees to seek a massive IMF bailout, warned officials and analysts

Inflation in Pakistan is likely to surge further as the cash-strapped nation will impose new taxes of 170 billion rupees this month in a bid for a massive bailout, warned officials and analysts on Monday, reported news agency The Associated Press.

The grim outlook comes after the International Monetary Fund delayed the release of a crucial $1.1 billion portion of a 2019 deal worth $6 billion, which was on hold since December over Pakistan's failure to meet the terms. The latest round of the talks between Pakistan and the IMF concluded on Friday with the fund recommending steps including imposing new taxes.

The country is facing its worst economic crisis as its forex reserve slipped to $2 billion which is barely enough to pay for imports for 10 days, according to the report. Pakistan's talks with IMF will resume virtually later Monday or Tuesday, according to the officials. Prime Minister Shahbaz Sharif last week warned that it would be difficult complying with the IMF's conditions.

Ehtisham-ul-Haq, a veteran economist told the agency, “The imposition of more taxes means tough days are ahead for the majority of the people in Pakistan who are already facing higher food and energy costs, but there is no other way out if Pakistan needs the IMF loans, and Pakistan desperately needs it."

Imtiaz Gul, a senior Pakistani political analyst, also raised concerns about the surge in inflation. "There is a need to broaden the tax base," he said, but raising taxes "will trigger an increase in the prices of all essential items.

Meanwhile, inflation has touched a 48-year high as the foreign currency reserves cover less than a month of imports. Consumers are hit by price shocks following an unchecked hike in the prices of daily food items, including loose milk, which has been increased to Rs210 from Rs190 per litre by some shopkeepers and live broiler chicken has witnessed a hike of Rs30-40 per kg in the last two days, taking the cost to Rs480-500 per kilogram, according to the publication The Dawn report.

The chicken meat is now being sold at Rs700-780 a kg which was Rs620-650 per kg a few days ago, the report added. Even loose milk is being sold at inflated prices. Karachi Milk Retailers Association media coordinator Waheed Gaddi said in case the price hike announced by dairy farmers and wholesalers is not rolled back, retailers will be forced to charge Rs220 per litre instead of Rs210 from the consumers as per new rate calculation after Rs27 per litre jump in procurement price.

Pakistan is already trying to recover from record-breaking floods, which killed 1,739 people in the summer of 2022 and destroyed 2 million homes. 

In January, dozens of countries and international institutions at an UN-backed conference in Geneva pledged more than $9 billion to help Pakistan recover and rebuild from devastating summer floods, but economists and Pakistani officials say those funds will be given for the projects, and not to cash.

Since then, Pakistani Finance Minister Ishaq Dar has said his experts were looking to impose additional taxes and cut subsidies on electricity, gas, and more to meet the IMF terms.