There are reports of factory closures, at least 150 over the past two years with the majority of the remaining units operating at 50 percent capacity as per a textile industry source — a trend that is fuelling unemployment in the country.
Industry attributes these trying conditions to high input costs compared to regional competitors — higher borrowing costs in spite of a decline in the discount rate to 10.5 percent, higher taxes even though most of them are indirect which are passed onto the consumers, and ending subsidised electricity/gas rates to achieve full cost recovery, conditions under the International Monetary Fund’s (IMF’s) ongoing programme.
To add insult to injury given that 75 to 80 percent of all revenue is from indirect taxes, whose incidence on the poor is more than on the rich, poverty levels have reached over 42 percent in the country, a rate comparable to some Sub-Saharan African countries.
And yet, there is overwhelming evidence that money is being made in Pakistan. The question is which sector/group is making money? And an equally relevant question is: have the influential elites’ stranglehold on making money been snipped due to the extremely harsh IMF conditions that include anti-corruption and governance measures, or have they managed to sustain the status quo?
Those operating in the private sector - the rich industrialists, the rich landlords - are post-7 billion dollars Extended Fund Facility (EFF) programme approved by the IMF on 10 October 2024 facing some serious challenges, given that the Fund has challenged the fiscal and monetary incentives meted out to these elite groups by previous administrations.
The Fund report asserts that the: “the state’s support of businesses through subsidies, favourable taxation arrangements, protection and governmental price setting has undermined the development of a dynamic and outward oriented economy…..Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”
Be that as it may, the government has convinced the Fund to allow a reduction in electricity tariffs – a concurrence achieved by borrowing 1.25 trillion rupees from 18 commercial banks to retire the circular debt (CD) with interest payments lower than those payable on the existing CD as the discount rate has declined from 22 percent last year to 10.5 percent at present. Needless to add, the interest due on CD was payable by the consumers on the retired CD as it is in the newly incurred CD.
However, just in case things do not go as planned the Fund stipulated a clause in its first review under the EFF documents dated May 2025: “Circular Debt (CD) targets have consequently been set lower for FY26H1—it is anticipated that, with this operation and other reforms…CD flow should continue to decline through the end of the operation (repayment of the sukuk) in FY31, and with it the need for budgeted power subsidy (a third of which is currently dedicated to CD stock clearance). It is imperative, given limited fiscal space, that payments for the operation are entirely financed out of the existing debt service surcharge (DSS).
While DSS flows are expected to fully cover payments, the authorities must remove the existing DSS cap (end-June 2025 new SB) to ensure that the DSS can be adjusted if needed to cover payments should there be any shortfall.”
In the second EFF review, the government convinced the IMF to support deregulation of the sugar and wheat sub-sectors.
Deregulation is a mantra of the globalists - a view supported by the IMF and under serious challenge by the Trump administration - requiring perfect competition conditions for maximum effectivity that entail a large number of buyers and sellers who cannot influence price. This is not the case in our sugar and wheat markets which are operated by powerful families/groups and deregulation may lead to further collusion that would work against the interests of the common man.
Farm tax on the rich landlords was another IMF condition to be imposed by the provinces effective January 2025, to be collected from 1 July 2025.
The four provinces budgeted a small amount under this head and disturbingly in the summary of the consolidated federal and provincial fiscal operations July-September 2025-26 released by the Finance Division there was no collection listed under this head.
The major source of provincial revenue remains transfer from the divisible pool by the federal government with Sindh consistently outperforming Punjab as well as the other two provinces in generating a larger percentage from its own resources (though Khyber Pakhtunkhwa’s (KPK) performance is no doubt compromised by the merged districts and Balochistan’s due to long-term insurgency as well as poverty).
The following amount was budgeted from own resources by the four provinces: (i) Sindh 31 percent reliance on own taxes — 135,469 million rupees against federal transfers of 441,556 million rupees; (ii) Punjab 12.36 percent reliance on own taxes — 109,072 million rupees against federal transfers of 882,326 million rupees; (iii) KPK 51.23 percent reliance on own taxes — 15,880 million rupees against federal transfers of 287,147 million rupees; and (iv) Balochistan 5.1 percent reliance on own taxes — 8,492 million rupees against federal transfers of 164,258 million rupees.
The provincial development programmes, like the federal, remain a source of contracts for those with influence (nepotism and/or extending a commission) over members of the very large federal and provincial cabinets.
The real estate business was acknowledged to be where black money was parked to whiten it, and the government was under pressure from the Fund to bring this into the tax net.
At present, the real estate activity is at a very low ebb as the government introduced the following taxes designed to stimulate activity within the genuine home buyers (an objective compromised by the rising unemployment and poverty levels) while discouraging short-term speculation (especially by non-filers): (i) withholding tax for buyers reduced across slabs from 4 percent to 2.5 percent highest; (ii) federal excise duty abolished which was previously as high as 7 percent; and (iii) withholding tax for sellers increased from 3 to 4 percent on properties up to 50 million rupees.
The net outcome of these measures: the real estate market is in a slump.
So who is making money? Those 7 percent whose salaries are paid for by the taxpayers’ and who deal with the general public (through bribes). In a more academically diplomatic language, reference is made to weak institutional framework, economic disparities and low wages, lack of accountability (with law enforcement/judiciary complicity), and lack of transparency and accountability.
The Fund documents note the following: “based on an institutional level risk, the National Accountability Bureau will lead and coordinate the development of action plans to mitigate vulnerabilities in the 10 agencies identified as having the highest risks (now end-October 2026 structural benchmark).”
Repeated efforts by Business Recorder for these ten entities to be identified have met with silence that compels one to conclude that corruption defined as circumventing the rules through collusion with officials remains the major source of making money today.
Copyright Business Recorder, 2025
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