Fresh irritant in IMF talks

As tough haggling between Islamabad and the International Monetary Fund (IMF) continues to hammer out a compromise bailout package, new irritants keep cropping up to throw a spanner in the works. The latest one to emerge is the provinces’ reluctance to acquiesce to the global lender’s demand that they show a cash surplus exceeding Rs430 billion in the next fiscal year. In a meeting with Pakistani negotiators, the IMF mission urged them to throw cash surpluses of around 1% of Gross Domestic Product (GDP) for fiscal year 2019-20, according to a report published in this paper. The demand has been made to keep the overall budget deficit below 5% of GDP.

Due to lower expenditures than the total revenues, the four federating units often book surplus cash that in turn is used for calculating the overall budget deficit of provincial and the federal governments. But the provinces found the IMF demand unrealistic and linked the cash surplus with the additional revenues that they will receive from the Centre under the National Finance Commission (NFC) award in the next fiscal year.

As against the IMF’s demand of over Rs430 billion cash surplus, the finance ministry also expects that the four provinces may generate cash surplus of around Rs275 billion or 0.6% of GDP. The provinces were inclined to accept the finance ministry’s cash surplus demand but they linked it too with the Federal Board of Revenue’s (FBR) ability to collect more taxes. For this fiscal year, the FBR is expected to collect less than Rs4 trillion in taxes – a figure that the IMF wants to see at around Rs5.4 trillion in the next fiscal. The four federating units get 57.5% of the federal taxes as their share under the NFC. However, the FBR sustained over Rs345 billion shortfall in tax collection during the first 10 months of this fiscal year, which also adversely hit provincial budget allocations. The main concern for the provinces is to protect their development spending. The Pakistani negotiators will need to thrash out a deal with the lender that safeguards the provinces’ interests.

 

Published in The Express Tribune, May 6^th, 2019.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.