Govt to cut spending to reduce deficit

Decision made to meet IMF condition for its $700m tranche

ISLAMABAD:

The interim federal government has decided to reduce spending on a massive scale in order to show a surplus of Rs600 billion on behalf of the provinces during the current fiscal year and to meet the International Monetary Fund’s (IMF) condition of reducing the financial deficit of the Centre.

It has also been agreed that any new projects under the annual development programme would not be launched.

The finance ministry sources said the caretaker government had made this decision because of the difficult financial situation of the country.

The Special Investment Facilitation Council (SIFC) also backed the proposal.

The federal government decided not to launch any new schemes under the Annual Development Programme in the current fiscal year to reduce the expenses.

However, the financial needs of the ongoing development projects will be met.

According to the sources, it has been decided to take the share in the subsidy of electricity, gas, wheat and fertilisers from the provinces in proportion to their population.

Wheat and fertilisers were imported at the behest of the provincial governments.

The commodity import liability of the Trading Corporation of Pakistan is over Rs2 trillion and the provincial governments had not paid their share for the past several years.

The sources said a law was being prepared for the participation of provinces in development projects and all subsidies.

Read Govt expenses shoot up to Rs1.1tr in 2 months

If necessary, the finance ministry would recommend changes in the National Finance Commission (NFC) Award.

According to the sources, the federal government wanted a significant reduction in expenditure before talks with the IMF in November as under the global lender’s loan programme, the provinces had to show a surplus of Rs600 billion for the current financial year.

Pakistan would receive another $700 million under its $3 billion loan programme in November only if the IMF's review mission recommended it.

A recent report from Topline Research titled ‘Pakistan IMF Loan Review: Funding Requirement, Primary Deficit, Gas Pricing & Monetary Policy’ highlighted that while the country had faced obstacles in meeting certain benchmarks, there was a high probability that it would receive the global lender’s next tranche.

The IMF’s Executive Board might grant a waiver if it believed the programme remained viable, and missed structural benchmarks as well as indicative targets were assessed in the context of the overall performance.

Pakistan secured a nine-month Stand-By Arrangement (SBA) from the IMF worth $3 billion in June 2023, marking a significant achievement after its failure to revive the previous $6 billion programme on the same day.

The SBA exceeded expectations in terms of both duration and size.

Under the $3 billion SBA, Pakistan received $1.2 billion in July 2023 and expected an additional $700 million upon the successful completion of the first review. The government was also exploring commercial loans worth $5 billion and another $0.7 billion from various sources, aiming for total projected foreign inflows of $26 billion for FY24.