ISLAMABAD: Prime Minister Imran Khan has been alerted about the grave implications of fiscal slippages in his first year in power, which created an additional hole of nearly Rs700 billion or 1.6% of Gross Domestic Product (GDP) that has to be bridged to stick to the International Monetary Fund (IMF) commitments.
The premier was informed on Saturday that the primary budget deficit -calculated after excluding interest payments, in the last fiscal year remained at 3.6% of the GDP or Rs1.4 trillion, sources in the Ministry of Finance told The Express Tribune after the meeting.
There were Rs610 billion or 1.5% of the GDP higher than the one assumed to agree on this fiscal year’s primary deficit target.
Due to the increase in a nominal size of the GDP, the overall impact of the slippage will be around Rs700 billion that has to be covered, the sources said.
This is exclusive of any adverse impact of a possible shortfall in tax revenues and excess expenditures during the course of the fiscal year.
While realising the grave fiscal situation, the sources said, the premier directed his economic team to focus on “small wins” that could provide some breathing space to the government.
The PM was also informed that the overall budget deficit remained at Rs3.43 trillion or 8.9% of the GDP, which was 1.7% of the GDP or Rs650 billion higher than earlier projected by the Ministry of Finance.
During the current fiscal year 2019-20, Pakistan had agreed with the IMF to bring down the primary deficit to only 0.6% of the GDP or Rs255 billion. This had been agreed on the assumption that the primary deficit in the previous fiscal year would be just Rs700 billion.
The only option in front of the government is either to cut its development budget or levy more taxes to stick to the 0.6% of the GDP primary deficit target.
The economic managers on Saturday also suggested PM Imran end the fear factor in the country that has held back the business community and bureaucracy from taking decisions and severely undermined the economic activities.
The message was conveyed to the premier at his Bani Gala residence in a meeting attended by key federal cabinet members and provincial finance ministers of Punjab and Khyber-Pakhtunkhwa, sources told The Express Tribune.
The meeting that lasted for about three hours discussed in detail the prevailing economic distress sentiment. The required change in policy for taxation and privatisation to enhance exports, special economic zones and ease of doing business issues were discussed during the meeting.
The PM was again urged to move quickly to amend the National Accountability Ordinance to limit the role of the anti-corruption watchdog that has emerged as the biggest stumbling block in the revival of the economic activities, the sources said.
However, the five-minute video statement of Finance Adviser Dr Abdul Hafeez Shaikh, which the PM’s secretariat released after the meeting, did not mention the NAB issue. The video confirmed that the government was working on an alternative economic plan and there was also a realisation of slow economic decision-making.
“We are moving forward and preparing a roadmap for the whole economy,” Shaikh said who over two months had signed a 39-month Memorandum of Economic and Financial Policies (MEFP) with the International Monetary Fund.
The adviser did not explain the rationale of preparing a new economic roadmap in the presence of 39-month IMF-dictated MEFP.
Shaikh said that the new roadmap would encompass all important decisions like enhancing agriculture productivity, building big dams or giving the comprehensive package to special economic zones for attracting foreign investment.
It was decided that the economic team would hold a weekly meeting with the prime minister under the roadmap where all important suggestions would be presented before him so that “active decision making is ensured”, Sheikh said.
Sheikh hinted at reducing the prices of petroleum products from the next month due to a reduction in crude oil prices in the international market.
He said that it was also decided that the government would sit again with the business community and resolve their all outstanding issues.
“We want to ensure that the business community actually gets electricity and gas subsidies, have access to loans and the tax burdened is lessened on the industry,” Sheikh said.
The adviser said that the premier assessed the performance of the Ministry of Revenue, planning, commerce, and industry. “The exercise was aimed at ensuring benefits of the budgetary allocations for the people,” he said. “The prime minister has directed that all big projects should be continuously monitored to achieve their objectives.”
PM Imran was told that the government would target high impact projects for their completion in the current fiscal year by ensuring the full release of budget and monitoring of physical activities. However, the Ministry of Finance in the past had linked the release with the FBR’s ability to achieve the target.
“We want improvement in an economic situation to give confidence to the business community,” Shaikh said, adding that the “stock market capitalization increased 9% last week and exports after a long time increased in July. The current account deficit has drastically reduced”.
But the sources said that it was underlined during the meeting that these improvements could lose steam if the fear factor was not adequately addressed.
Federal Minister for Law and Justice, Dr Farogh Naseem, on Wednesday, said that amendments were being proposed to rationalize the NAB law and excluding the private person from the jurisdiction of the anti-graft buster.
In the last cabinet meeting, PM’s Special Assistant Nadeem Afzal Chan had also complained that the economic activities were drastically reduced due to the fear factor and the bureaucracy was also not cooperating.
Economic activities both in formal and informal sectors have come to a grinding halt coupled with skyrocketing inflation that hit a 10-year peak last month.
Large-scale manufacturing activity contracted for the first time in 10 years by 3.6%.
Business activities have slowed down due to new taxation measures, drive against the informal economy and squeeze on the banking sector due to implementation of the Financial Action Task Force’s action plan.