Budget delayed by a week
The government has delayed the presentation of the new budget by over a week due to Prime Minister Shehbaz Sharif's foreign tour to thank friendly nations for supporting Pakistan in the war against India and due to some hiccups in the finalisation of certain heads of expenditures.
Sources also said that the government was considering further increasing the existing Rs78 per litre petroleum levy rate to finance an enlarged Public Sector Development Programme (PSDP) for the fiscal year 2025-26, starting from July.
The government shelved the plan to present the budget on June 2 and instead decided to unveil the fiscal year 2025-26 outlay on June 10, finance ministry sources said. Accordingly, a scheduled May 26 meeting of the Annual Plan Coordination Committee to approve the next fiscal year's PSDP and macroeconomic targets has also been indefinitely postponed.
The development came on the last day of budget discussions with the International Monetary Fund (IMF) on finalising the new budget in line "with the advice of the IMF staff." Speaking to The Express Tribune, Federal Board of Revenue (FBR) Chairman, Rashid Langrial, said that discussions with the IMF would continue virtually during the weekend as well as over the next week.
"Constructive and in-depth discussions have been held with the IMF, which will continue over the next week," said Langrial. Matters pertaining to taxation were opened for discussion in addition to the tax target.
The FBR's target, the PSDP, and spending on security matters are interlinked.
Ahsan Iqbal, Minister for Planning and Development, told The Express Tribune that for the next fiscal year the PSDP budget had been set at Rs1 trillion, Rs79 billion higher than the earlier proposed ceiling of Rs921 billion.
Iqbal said that the budget had been delayed due to "limited time after concluding talks with the IMF and because of the Eid holidays."
PM Sharif has convened another meeting in Lahore today (Saturday) to discuss budget-related issues before leaving for a four-nation trip on Sunday.
Separate meetings were held with the prime ministe and Deputy Prime Minister Ishaq Dar on Friday to finalise next year's PSDP. The coalition partners were demanding large shares in the PSDP, including more allocations for parliamentarians' schemes.
Dar on Friday emphasised that PSDP priorities must deliver tangible socio-economic benefits, particularly job creation, poverty reduction, and regional equity, aligned with the prime minister's URAAN Pakistan vision for inclusive, innovation-led growth.
The deputy prime minister also chaired the high-level committee for the implementation of the National Fiscal Pact (NFP). The committee aims to facilitate effective implementation of NFP, a major step in addressing fiscal challenges faced by the federal government. The committee deliberated on ways to improve and enhance the federal fiscal resource base.
The committee reaffirmed its commitment to NFP while emphasising the resolve to find a viable solution to the current fiscal challenges facing the federal government.
Circular debt plan
Meanwhile, the IMF has not endorsed the government's plan to retire circular debt in the petroleum sector. The privatisation adviser presented the plan first to the prime minister and then to the IMF on Friday.
The government had proposed settling about Rs1 trillion worth of circular debt against higher-than-normal dividends by state-owned companies. These higher dividends were proposed to be utilised for retiring the circular debt over a period of five years. For the next fiscal year, the government had proposed retiring Rs170 billion of petroleum sector circular debt, including Rs19 billion of Pakistan State Oil (PSO).
However, there was abnormal movement in the share price of PSO, which increased 133.1% since July last year, despite the company facing serious problems. By comparison, the share prices of financially stable firmsOil and Gas Development Co increased by 57% and Pakistan Petroleum Limited by 45%.
The IMF raised queries against the plan and postponed the matter until after the budget for further review. The government has now excluded PSO from the circular debt retirement plan due to serious objections over the abnormal movement in PSO shares, said the sources. They said that the IMF was also unwilling to further increase power subsidies and has asked to cap them at Rs1.04 trillion, equal to 0.8% of the size of the economy. The power division was demanding Rs180 billion more.
The finance ministry has also slashed some other subsidies in the next budget to create space for clearing contingent liabilities.
PM Sharif will travel abroad from May 25 to visit Iran, Türkiye, Azerbaijan, and Tajikistan. The premier will visit Türkiye and Azerbaijan, where high-level discussions will be held with the respective heads of state. The prime minister is expected to reaffirm Islamabad's appreciation for their vocal support during the India-Pakistan conflict and explore broader strategic and economic cooperation.
The final stop of the tour will be in Dushanbe, Tajikistan, where PM Sharif will attend the International Conference on Glaciers.