Govt misses deficit target, will need IMF’s lenient hand

Will have to seek waiver for last loan tranche worth $102 million

ISLAMABAD: The government, for the consecutive second year, has missed the ‘sacrosanct’ budget deficit reduction target of the last fiscal year, and will have to seek a waiver from the International Monetary Fund (IMF) to qualify for the last loan tranche.

Against the IMF-determined target of reducing the budget deficit - gap between income and expenses - to 4.3% of Gross Domestic Product (GDP) or Rs1.292 trillion, the deficit remained slightly higher in the fiscal year 2015-16 that ended on June 30.



“In the last three years, the budget deficit has been reduced from 8.8% of GDP to 4.45%,” said Finance Minister Ishaq Dar on Tuesday, while speaking to the officers of the Federal Board of Revenue(FBR).

Pakistan Television aired the speech of the Finance Minister who appeared reluctant to face the media.

“One of the reasons for missing the budget deficit target was less than the targeted economic growth rate in the last fiscal year,” said an official of the Finance Ministry.

In the fiscal year 2015-16, economy grew at a pace of 4.7%, although independent economists contest the government’s claim of achieving this growth rate.

Dar said in June 2013, when the PML-N government came into power, the budget deficit was 8.8% of the GDP.



However, in the last fiscal year’s accounts, the government had not booked Rs660 billion outstanding circular debt, which has been parked outside the budget. The 8.8% budget deficit, which was actually 8.2% in fiscal year 2012-13, also included the circular debt payments.

The government will have to seek a waiver from the IMF Executive Board to qualify for the last loan tranche of the $6.2 billion bailout package.

It was the consecutive second year when the PML-N government failed to achieve the budget deficit target. The government had also missed fiscal year 2014-15 budget deficit target.

Pakistan has managed to complete eleven reviews of the programme, largely because of a lenient IMF that granted over 15 waivers to keep it on track.

Pakistan and the IMF are scheduled to meet in the last week of this month in Dubai to review the economic performance for April-June. The successful completion of the review will pave the way for the release of the remaining $102 million last tranche of the loan.

Dar also claimed that in the last three years, the government turned around the economy. “The country’s total foreign currency reserves crossed $23 billion mark, including $18 billion reserves held by the State Bank of Pakistan (SBP),” he said.



The Finance Minister brushed aside criticism that those reserves were largely built by borrowing money. He said that in last three years, the government retired $10 billion loans. “Few people were trying to create confusion that the foreign currency reserves were built through borrowings,” he added.

Dar congratulated the FBR officers for ‘achieving’ last fiscal year’s Rs3.104 trillion-tax target and urged them to work harder to achieve the new fiscal year’s Rs3.621 trillion annual tax collection target.

He also tried to soothe concerns of real estate sector investors who had panicked after the government brought changes in laws relating to valuation of the properties for tax purposes. Dar said that involving the SBP in property valuation for tax purposes was a big step but there was no need for investors to panic. “The government would engage the real estate sector investors to address their concerns,” he said.

The Finance Minister also claimed that the FBR has been insulated from “external pressures”. 

Published in The Express Tribune, July 13^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.