Bailout terms: Pakistan, IMF reach agreement for next year’s budget

Fiscal deficit to be contained at 4.3% of GDP, growth projected at 4.5%


Shahbaz Rana May 12, 2015
Fiscal deficit to be contained at 4.3% of GDP, growth projected at 4.5%. PHOTO: REUTERS

ISLAMABAD:


Pakistan and the International Monetary Fund (IMF) have reached an agreement on the budget for fiscal year 2016, which will seek to limit Islamabad’s fiscal deficit and growth in indebtedness.


The broad contours of the agreement were announced at a joint press conference held in Islamabad by Finance Minister Ishaq Dar and IMF Mission Chief in Pakistan Harald Finger. Pakistan has agreed to limit its budget deficit for the fiscal year ending June 30, 2016 to Rs1.34 trillion, or 4.3% of the total size of the economy. The agreement will continue the fiscal consolidation undertaken by the Nawaz administration.



The IMF projects Pakistan’s economic growth rate at 4.5% for the next year, somewhat higher than the downward revised number of 4.1% for fiscal 2015. Most economists agree that Pakistan needs economic growth of between 5% and 7% to be able to absorb new entrants into its workforce.

The fiscal deficit target has been revised upwards to 4.3% for this year’s target of 4% of gross domestic product (GDP) due to expenses arising from Operation Zarb-e-Azb, the war against the Taliban. The Rs1,340 billion budget deficit projected for fiscal 2016 includes Rs130 billion due to those expenses, said the finance minister, adding that the government would cut down on other expenses to keep the deficit within the 4.3% limit. The Rs130 billion will not be included as part of the defence budget, even though it is defence spending.

Among the expenses the government will cut down are electricity subsidies. In addition, the government will impose new taxes to raise revenue collection to Rs3.1 trillion.



For power tariffs, the government plans on taking advantage of low global oil prices to reduce subsidies. The government will allow power distribution companies to charge the actual 18.9% in line losses they currently face, as opposed to the 13% in line losses the government currently allows.

Dar underlined the need for a growth-oriented budget but Finger emphasised the need to consolidate gains in macroeconomic stability that he said Pakistan achieved during first half of the three-year $6.6 billion IMF bailout programme.

Both the sides also announced successful completion of seventh review of the economy which, Finger said, would allow the Executive Board of the IMF to sanction disbursement of the next loan tranche of $506 million in late June. The mission chief announced that the IMF’s economic growth projection for Pakistan has been lowered to 4.1% for the current fiscal year – precisely 1% less than the official target. Finger said by next fiscal year the growth may accelerate to 4.5%.

Seventh review

Both the sides announced the successful conclusion of the seventh review. It was for the first time in Pak-IMF history that Islamabad met its contractual commitments and concluded the seventh review. The finance minister said that Pakistan would not seek any waiver, as it has fulfilled all programme conditions.

“We cannot be complacent and the economic gains have to be consolidated in the second half of the programme,” said Dar.

Published in The Express Tribune, May 12th, 2015.

COMMENTS (4)

hamza khan | 8 years ago | Reply @Shaharyar Azhar: dharna politics only happened because PML-N rigged the elections with the help of an entire machinery. this will be established inshallah in the coming weeks, the results declared null and void, and the government will be sent packing. seb se pehle pakistan!
Shaharyar Azhar | 8 years ago | Reply Nice and wise decision by the finance minister to meet them personally and ask them to grant this leverage. All the things are moving on in a positive direction but I fear anymore of "Dharna politics" would set back our economic growth by far. New taxes are going to implemented,not a good news but that is how things run. Pakistan Zindabad.
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