Islamabad (TDI): The International Monetary Fund (IMF) has asked Pakistan to immediately end preferential treatment or tax exemptions and other similar measures for the agriculture and textile sectors, which is affecting the country’s growth potential.
In its fresh staff report on the factors behind Pakistan’s weak economy, the IMF said that the two sectors are failing to contribute adequately to the national revenue.
The report highlight as how it is consuming large portions of public funds while remaining inefficient and uncompetitive.
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According to media reports, as part of the recently approved $7 billion Extended Fund Facility (EFF), the IMF stressed that Pakistan must break from its economic practices of the past 75 years to escape its recurrent boom-bust cycles.
According to the daily ‘Dawn’, the report highlighted the country’s significant lag behind similar nations, a stagnation that has compromised living standards and pushed over 40.5 per cent of the population below the poverty line.
The report added that Pakistan had struggled for more sophisticated export goods, and the share of knowledge-intensive exports remains low because it lacked innovation.
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In 2022, Pakistan ranked 85th in the Economic Complexity Index, the same rank it held in 2000.
The IMF report said, “With an export basket strongly biased towards agriculture and textiles (cotton yarn, rice, woven fabrics, beef, leather apparel), the country has struggled to reallocate resources towards more technologically complex products”.
Pakistan does export some high-value products, such as medicines, medical instruments and plastic products, these sectors operate in a heavily distorted economic environment.
“Reallocation, however, is held back by existing microeconomic distortions, including public procurement of agricultural goods, price controls on raw inputs, and fiscal and financial incentives for low productivity sectors,” it said.
The report said that the textile sector is having the highest tax gap relative to its value added, noting that between 2007 and 2022, the sector benefited from subsidies, favourable pricing on inputs, concessional financing and preferential tax treatment.
Until, May 2024, 70pc of the outstanding concessional central bank loans were tied to the textile sector.
IMF urged Pakistan to avoid using tariffs to promote industrialization or protect inefficient sectors, arguing that such policies weaken exports, hinder participation in global value chains, and incentivize rent-seeking.
It said, “trade policies aimed at promoting specific domestic sectors, including export subsidies and local content requirements, should be discontinued as they are likely to promote resource misallocation and may violate international obligations”.
