In order to stave off bankruptcy and debt default, the crisis-ridden country has already removed artificial caps on its currency resulting in it shedding more than a quarter of its value; fuel prices have jumped by almost a fifth and are expected to rise further; key policy rate has been hiked; and taxes on luxury items have been increased.
On Wednesday, Prime Minister Shehbaz Sharif addressed the media alongside the federal Cabinet and announced a slew of new cash-saving measures:
- PM Sharif announced that ministers and special advisers had decided to forego their salaries and perks.
- Till June 2024, there will be a complete ban on buying luxury items and on purchasing all types of new cars.
- All minister will also now pay their own telephone, electricity, water and gas bills.
- All luxury cars being used by Cabinet members will be revoked and will be auctioned.
- Federal ministers will travel in economy when undertaking domestic travel or going abroad.
- Support staff will no longer be allowed to go on state visits.
- Cabinet members will not stay in five-star hotels during foreign trips.
- Government officers will only be allowed to undertake “obligatory visits”, and they will travel in economy.
- Security cars will no longer be provided to government officers.
- Teleconferencing would be promoted in order to reduce traveling expenses.
- For the next two years, no new administrative unit, division or sub-division will be created.
- To conserve gas and electricity, offices will open at 7.30am during the summers.
- Only a single dish would be allowed at government events. “There will only be one dish in all the ministries in Islamabad, in the Prime Minister’s House and the federal cabinet. If it is tea time, then only tea and biscuits will be provided,” said the PM.
- PM Sharif said that the current expenditure of ministries, departments and sub-departments would be reduced by 15%.
- Government houses spread on acres will be converted into Townhouses.
- No official or minister will be allowed to retain state gifts worth more than $300.
- Single treasury account to be established.
PM Sharif said the measures would be implemented immediately, adding that “additional steps” would be taken at the time of the budget for the new fiscal year. He also urged chief ministers and high-ranking officials in the four provinces to introduce similar measures.
Pakistan’s government had also issued guidelines to save energy costs, including closing all malls and markets by 8.30pm.
PM Sharif, however, said the energy-saving plan had not been implemented yet. He added that further delay will not be tolerated and warned that power supply would be cut to malls and big markets if measures are not taken seriously.
Pakistan is desperate to unlock the $1.1 billion tranche of a $6.5 billion package but has been struggling to meet the tough conditions set by the global financier — specially since an election is due by the end of the year and the government is reluctant to be too harsh in case it is punished at the polls.
The IMF and Pakistan recently concluded the ninth review of the bailout package without a staff-level agreement after 10 days of talks.
Shutting down some foreign missions
Earlier in the day, Pakistan had ordered its foreign ministry to slash the number of missions abroad, reduce staff and initiate other measures to cut down expenditures by 15%.
The move to slash expenses of foreign missions was recommended by the National Austerity Committee (NAC), which was constituted by PM Shehbaz Sharif to suggest ways to cut spending for the country in the wake of the financial crisis and impending debt payment default.
‘Deal close at hand’
At the outset of the press conference on Wednesday, the PM said that matters with the IMF were at the “last stage” and almost all condition have been met.
He, however, warned that the country should brace itself for a further spike in inflation.
Following the global financier’s statement that Pakistan must take steps to ensure that its high earners pay taxes and only the poor get the subsidies “if it wants to function as a country”, Pakistan’s National Assembly passed a Bill on February 20 to raise taxes on a raft of luxury imports and services.
Pakistan: Hike in fuel prices to raise inflation, people staring at bleak future
The supplementary finance bill increases sales tax from 17% to 25% on imports ranging from cars and household appliances to chocolates and cosmetics. People will also have to pay more for business-class air travel, wedding halls, mobile phones, and sunglasses. A general sales tax was raised from 17% to 18%.
The foreign minister said the higher taxes would generate an additional $650 million .
On the verge of bankruptcy
Pakistan has a chronic balance of payments problem which was exacerbated in the last year, with the country’s forex reserves declining to critical levels.
As of February 10, the central bank had only $3.2 billion in reserves, enough to cover barely three weeks of imports.
To stem dollar outflows, the government has imposed restrictions, allowing imports of only essential food items and medicines until a bailout is agreed upon with the IMF, which is seen as essential for the country to stave off default.
The government’s strategy to restrict imports in order to safeguard reserves has turned out to be a double-edged sword, however, as several industries rely on imported inputs to continue operations.
As a result, multiple companies across sectors have either suspended operations or scaled down production levels, leading to layoffs.
(With inputs from agencies)
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