ISLAMABAD: In an attempt to slash expenditure and impose new taxes to narrow down the budget deficit by over Rs150 billion, the government and the main opposition party have discussed the option of partially withdrawing a 50 per cent increase in the salaries of government employees, The Express Tribune has learnt.
The option was discussed on the second day straight of talks between negotiators from the government and the Pakistan Muslim League-Nawaz (PML-N) on a 10-point reforms agenda spelled out by Nawaz Sharif last month.
Sources said the government tabled a proposal to halve the 50 per cent salary increase given to public servants from July 2010. If taken, the decision will be effective from January 1 and applicable to all public servants in basic pay scale (BPS) 17 and above.
PML-N’s chief negotiator Senator Ishaq Dar in principle agreed to the proposal but put a condition: It must be applicable across the board, including the president, prime minister, cabinet members and all other functionaries, he said.
“The budget deficit is not only the biggest evil but the biggest challenge too,” the sources quoted Senator Dar as saying. “Inaction will result in a budget deficit beyond the limit set by the International Monetary Fund (IMF).”
Senator Dar said the government and the opposition would have to agree on “firefighting measures, because there is no choice to improve the situation”.
Asked if his party agrees to new revenue measures why is it opposing reformed general sales tax (RGST), he said, “These measures will not revolve around the RGST.”
Other proposals floated by the government include saving Rs10 billion from the projected Rs70 billion spending on the people affected by the recent epic floods and restricting the Pakistan Railways subsidy to Rs20 billion as against the demand of Rs30 billion, the sources said.
On the revenue side, the government proposed doubling the federal excise duty rate on import of goods and increasing duties on cigarettes. The sources said that the government did not discuss the issue of levying RGST. The two sides will finalise these proposals today (Thursday). These measures are meant to restrict the budget deficit to Rs924 billion, or 5.4 per cent of the total size of the economy, said the sources.
The government negotiators told the PML-N that if it did not support these initiatives, then the deficit could be as high as Rs1.37 trillion. However, even if the two sides agree to take these measures, the budget deficit would be still Rs120 billion higher than the revised target given by the IMF. The Fund jacked up the budget deficit ceiling to 4.7 per cent of the GDP to provide additional space for floods related spending.
If something positive comes out of these talks, the IMF staff-level mission will visit Islamabad by the end of next week, said an official of the finance ministry.
The IMF had suspended the $11.3 billion bailout programme in July last year.
“We want to give a message to the world that despite difficulties Pakistan will not let the budget deficit slip beyond a specific target,” said Finance Minister Dr Abdul Hafeez Shaikh after the meeting.
He said the government would apply a combination of resource mobilisation and expenditure cut to restrict the budget deficit. “But nothing will be done without evolving a consensus,” he added.
Published in The Express Tribune, February 10th, 2011.