According to WSJ, Pakistan is looking to IMF for loan in order to finance the debt payments. This is after China pretty much refused to provide any assistance.
Since Pakistan's credit rating has been cut lately, the interest rate on which IMF will provide funds is most likely going to be much higher than the rates of its current loans. This means that the debt load will rise further and so will the probability of default. The preconditions of this loan will include spending cuts and tax increases. I don't see any reduction in government spending any time soon. Why is that? The newly elected govt has to recoup the funds that it spent on election campaigns and also provide assistance in the form of contracts and jobs to their near and dear.
That brings us to tax increases, now who pays taxes honestly in Pakistan. Well for starters, the average person who works in a government or semi-government organization. Due to tax withholding, he has not option left to him but to pay them. Do you think that above average or above median revenue earners (industries, land owner, businessmen) honestly pay taxes due on their incomes? We are talking about Pakistan here so you need to think again. Now who gets the burden of tax increases? Yep, you got that right, the average guy who has already been crushed under the burden of paying for not only his earnings but also the tax evaders. Now he has to bear even bigger load.
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