Rs425b for unforeseen events likely

Govt may allocate funds in budget to cope with natural disasters, other such expenses

ISLAMABAD:

The government may allocate around Rs425 billion for emergency and unforeseen events in the next budget as part of its commitment to set aside funds for meeting emerging fiscal needs due to a ban on approval of additional supplementary grants during the course of the year.

The allocation for the contingency pool for the next fiscal year, 2026-27, has gained importance after this year's Rs389 billion worth of budget was mostly diverted to offset the impact of missed revenue targets and meet some other liabilities.

The government had not been left with any money when the recent petrol supply shock struck and it had to resort to slashing the development budget and increasing the petrol levy.

The International Monetary Fund (IMF) has asked Pakistan to set aside a portion of the budget close to 0.3% of gross domestic product (GDP) for unforeseen events, like natural disasters and other such expenses. A ban is in place on issuing additional supplementary grants during the course of a fiscal year as part of the IMF programme.

Depending on the projected size of the economy for the next fiscal year and final adjustments in fiscal numbers, sources said, about Rs425 billion may be earmarked in the upcoming budget for these events.

The government has drawn criticism for using the contingency budget to make up for lower-than-required revenue receipts during the current fiscal year. Questions have been asked about using the current year's Rs389 billion contingency pool. A government official said that funds were largely utilised to offset the impact of revenue slippages.

There was also a view that the contingency pool could not be used for fuel subsidies. However, the counter-argument was that the funds could be used for keeping prices low, as it was a force majeure event.

Internal discussions also took place this week to review the implications of higher petroleum levy. Sources said that some participants of a meeting suggested that the government should not further increase the petroleum levy to mitigate the shortfall in tax revenue compared to targets agreed with the IMF.

A suggestion was floated that next year's petroleum levy target may not be fixed on the basis of Rs80-per-litre levy on diesel and petrol. Officials revealed that the government was advised to keep tax rates lower until global prices stood at elevated levels so that some relief could be provided from the next fiscal year.

The government collected Rs1.205 trillion in petroleum levy during the first nine months of the current fiscal year, which was almost equal to the 12-month collection last year.

Sources said that next year the target for petroleum levy would be higher than the current year's Rs1.47 trillion. However, the central bank profit target would be lower following a reduction in interest rate to 11.5%.

Pakistan's fiscal performance in the first nine months (July-March) of FY26 was better than projections after recording the annual central bank profit and better-than-targeted collection of the levy.

The overall budget deficit during July-March amounted to Rs856 billion, or 0.7% of GDP, thanks to the high petroleum levy, reduction in interest expenses and record provincial cash surpluses.

The nine-month interest cost stood at Rs4.95 trillion, down Rs1.5 trillion, or 23%. Compared to that, the total federal expenses decreased by only Rs897 billion, or 8%, during the same time period.

Sources said that interest expenses would go down in the next fiscal year, driven by the overall reduction in rates. As a result, the size of the budget will not see any abnormal increase.

Pakistan's four provincial governments generated a Rs1.63 trillion cash surplus, which was Rs583 billion, or 55%, higher than last year. Half of the surplus, or Rs824 billion, was reported by Punjab. For the upcoming year, the provinces are required to achieve a surplus of Rs1.7 trillion. On the back of higher provincial surplus and increased petroleum levy collection, the primary budget surplus stood at Rs4.1 trillion, or 3.2% of GDP, in nine months.