Bloomberg said that Pakistan is witnessing a growing wave of protests as taxes rise, as part of the $7 billion financial rescue program agreed upon with the International Monetary Fund.
Although this agreement helped avoid an imminent economic collapse, the conditions accompanying it exacerbated popular anger as a result of the significant rise in the cost of living, according to this American agency.
High taxes, electricity and food prices
Bloomberg notes that one of the most prominent provisions of the agreement with the IMF is to increase taxes by a record rate of 40%. This has caused commodity prices to rise sharply.
In some areas, electricity prices have tripled, while the price of milk in Karachi exceeds its price in Paris, according to Bloomberg.
It is estimated that more than half of Pakistani household income is now spent on food, making many goods such as rice and shoes out of reach for a large segment of the population.
Niaz Muhammad, a fruit and vegetable seller in Islamabad, said in an interview with Bloomberg, “People simply no longer have the ability to buy,” noting that customers who used to buy fruits and vegetables daily now buy them only twice a week. “It’s not just me, it’s everyone.” “They suffer.”
Inflation exceeds wage increases
Over the past few years, Pakistan has had the highest inflation rates in Asia according to Bloomberg, with inflation averaging 23% in the last fiscal year.
This figure far exceeds wage increases of only 5% to 10%, according to government data. In an interview with local media, Finance Minister Muhammad Aurangzeb noted that “transitional pain” as a result of the IMF program is inevitable, but added, “If we want this program to be the last, we must implement structural reforms.”
Economic and social repercussions
With the rise in electricity prices, which represents a source of great frustration for both the rich and the poor, social media has seen videos reflecting the state of discontent, according to Bloomberg.
Pakistan faces additional economic challenges in the form of one of the lowest tax-to-GDP ratios in the world, at about 9%.
Despite the rise in taxes on the middle class, government expenditures did not witness any reductions in the new budget that began last July. According to government data, taxes on employees represent 42% of government revenues.
In the business sector, private companies are not happy either. The corporate tax rate is about 30%, which is among the highest in the world, according to Bloomberg.
In a move that dissatisfied many exporters, the government raised taxes on them from 1% to 29%. Eighteen export associations published advertisements in local newspapers for several days in protest against this decision.
Effects at all levels
Many multinational companies responded to this situation by reducing the volume of products sold in what is known as “deflation.”
Bloomberg quoted Ali Khazar, head of the research department at the Business Recorder newspaper, as saying that workers who receive fixed salaries find themselves in a difficult situation, as car sales have fallen to their lowest level in two decades, and air conditioner prices have doubled over the past few years.
Khazar added that Pakistan’s best and brightest minds are leaving the country at unprecedented rates in search of better opportunities.
Although increasing taxes may help curb inflation, the economic slowdown continues, and Khazar says, “The suffering of the middle and lower classes will not end anytime soon.”
