current affairs MCQ #6959

What structural vulnerability does Pakistan's narrow tax-to-GDP ratio (approximately 9-10%) create in the context of IMF EFF conditionality?

current affairs MCQ #6959

  1. Question 1

    Q1. What structural vulnerability does Pakistan's narrow tax-to-GDP ratio (approximately 9-10%) create in the context of IMF EFF conditionality?

    • A) It forces Pakistan to borrow exclusively from the IMF as no other lenders accept such low ratios
    • B) A low tax ratio automatically triggers IMF penalties under the EFF framework
    • C) Pakistan must maintain a low tax ratio to attract SIFC foreign investors who demand tax-free environments
    • D) Pakistan remains heavily dependent on indirect taxes and borrowing to finance expenditure, limiting fiscal space for development spending and making debt service burdensome relative to revenues

    Answer: Pakistan remains heavily dependent on indirect taxes and borrowing to finance expenditure, limiting fiscal space for development spending and making debt service burdensome relative to revenues

    Explanation: With a tax-to-GDP ratio of only 9–10%, Pakistan cannot generate sufficient domestic revenue to cover expenditure, forcing reliance on indirect taxes, domestic borrowing, and external loans; this structural weakness limits development spending and makes debt servicing consume a disproportionate share of government revenue — the core concern under IMF EFF conditionality.