Less than 48 hours before close of financial year, the government has sought an emergency international loan to finance its budget deficit in addition to dispatching a team to Karachi to persuade banks to pay taxes in advance in an attempt to cover an expected Rs110 billion shortfall in meeting a revenue target that had already been revised downwards.
The shortfall comes despite the fact that the government had already introduced several measures in March to increase its revenues by up to Rs53 billion and has given retroactive effect to next year’s tax measures to begin from June 3, the day the budget was presented, rather than July 1, the start of the new financial year.
The government has even suspended payments of Rs16 billion to victims of the flood just so it can show the 2011 budget deficit to be below the targeted Rs1,068 billion or more than 6% of the total size of the economy.
Sources at the Federal Board of Revenue (FBR) told The Express Tribune that the government had collected Rs1,478 billion in taxes as of June 28, higher by 16% compared to last year but still short of the Rs1,588 target by Rs110 billion.
As the FBR gets desperate, it has activated Plan B: dispatching Additional Secretary Asrar Rauf to Karachi to arrange for advance tax payments from banks, said sources privy to the development.
However, one of the major commercial banks has reportedly refused to oblige the government’s request, forcing the FBR to turn to the only major state-owned bank: the National Bank of Pakistan (NBP). Last year the government had obtained a Rs25 billion advance from the NBP to cover a part of the shortfall.
This is the second attempt by the government to shake money out of the banks. The FBR had previously tried to raise Rs30 billion in revenues by accusing banks of not paying enough in withholding taxes. About Rs20 billion of that tax bill was from the NBP alone, which contested the demand, at which point the FBR revised the figure down to Rs8.6 billion.
Another sign of the government’s desperation is the fact that it has asked for a $160 million loan from the Islamic Development Bank (IDB). Islamabad usually avoids taking loans from the IDB due to the short repayment period and much higher interest rates compared to loans from the World Bank and the Asian Development Bank.
The government had hoped to raise $500 million through an exchangeable bond back by shares in the state-owned Oil & Gas Development Corporation, the largest public company in Pakistan. However, it was advised by its investment bankers to delay such an offering owing to unfavourable conditions as global financial markets struggle with the debt crisis in Greece and the United States
Rana Assad, the finance ministry spokesperson, insisted the government would be able to meet its deficit targets. He said the government would delay its next tranche of payments to flood victims until after the close of the fiscal year on June 30.
Published in The Express Tribune, June 30th, 2011.