Govt meets IMF fiscal conditions

Centre receives only Rs57.5b, or 6% of annual provincial grant

ISLAMABAD:

Pakistan has met three major fiscal conditions of the International Monetary Fund (IMF) for the first quarter of this fiscal year by keeping budget consolidation on track, but the Centre received only Rs57.5 billion, or 6% of the annual provincial grant, for national economic initiatives.

Although three of the four July-September targets were met, the combined fiscal operations summary showed that the pace of consolidation had slowed, with an uptick in expenditure at the start of the third year of the governments at the Centre and in the provinces.

According to the finance ministry, it received Rs57.5 billion in cash grants from all four provinces, including Rs12.7 billion from Khyber-Pakhtunkhwa (K-P), which had publicly linked the grants to a meeting with the imprisoned Leader of Pakistan Tehreek-e-Insaf, Imran Khan.

According to an understanding reached between the federal and the four provincial governments in June this year, the four provinces would give Rs1.035 trillion in cash grants to meet expenditures on security and nationally important projects. The federal government has already approved allocations of Rs275 billion for six priority water sector projects this month.

The details, however, showed that only Rs57.5 billion was received from the four provinces for the July-September period, hardly 6% of the annual committed amount. Punjab gave the most, Rs32.5 billion, while Sindh gave Rs8.5 billion.

The second-highest amount, Rs12.7 billion, came from the K-P government, the province where the federal government imposed governor's rule last month. Balochistan gave Rs3.7 billion in cash grant, according to the finance ministry.

The details showed that the four provinces missed the IMF condition on tax collection but met the cash-surplus target. The country met the primary budget surplus condition, while the Federal Board of Revenue (FBR) also met its IMF target for the first quarter this time.

The IMF has set multiple fiscal conditions, and their successful completion has so far helped ensure the programme's smooth continuation despite initial setbacks. The IMF board is tentatively scheduled to meet next month to approve loan tranches worth $1.2 billion, according to Finance Minister Muhammad Aurangzeb.

Against a quarterly primary surplus target of Rs1.95 trillion, the federal government reported a surplus of Rs2.97 trillion, or 2.1% of gross domestic product (GDP). This higher surplus was primarily due to fully booking the annual central bank profit in the first quarter.

However, the central bank's profit fell sharply by 20%, or Rs495 billion, to a little over Rs1.9 trillion, according to the finance ministry.

The four provinces collectively generated a cash surplus of Rs599 billion, exceeding the IMF target by Rs83 billion. Three provincial governments showed cash surpluses, but Balochistan ran a budget deficit in the first quarter, according to the ministry.

The federating units generated Rs301 billion in tax revenues, missing the IMF target by Rs88 billion.

Against a three-month revenue target of Rs3.03 trillion, the FBR collected Rs3.089 trillion, exceeding the target by Rs60 billion. But after September, the FBR began facing a revenue shortfall and was Rs95 billion in deficit for the first four months of the fiscal year.

The non-tax revenues of the five governments amounted to Rs2.6 trillion, Rs430 billion, or 14%, less than in the last fiscal year. The key factor behind the dip was the shrinking central bank profit.

The government collected Rs382 billion in petroleum levy during the first quarter, Rs11 billion higher than in the last fiscal year.

Provincial governments enjoy significant fiscal flexibility due to increased revenues under the National Finance Commission award. In July-September, the four provincial governments spent about Rs1.8 trillion, with development spending reaching Rs1.34 trillion. Their total revenues stood at Rs2.4 trillion, of which Rs1.9 trillion came from their shares of federal taxes.

A breakdown of provincial performance showed that Punjab, with total revenue of Rs1.1 trillion, spent Rs785 billion, generating a surplus of Rs333 billion. However, the province recorded a statistical discrepancy of Rs13.2 billion.

Sindh booked a cash surplus of Rs181 billion after spending Rs510 billion, well below its total revenues. The province also reported a Rs20 billion statistical discrepancy.

K-P recorded a budget surplus of Rs102 billion, with Rs414 billion in income and Rs312 billion in expenditures. K-P also had a statistical discrepancy of Rs35 billion.

Balochistan ran a Rs16 billion budget deficit and spent Rs191 billion in three months.

On the expenditure side, the federal government spent a total of Rs3.1 trillion during the first three months, with only Rs81 billion in development expenditures.

The federal government paid Rs1.7 trillion in interest costs, an increase of Rs322 billion, or one-fourth, from the previous year. Defence spending amounted to Rs495 billion.

After distributing the provincial share, the federal government's net income stood at Rs3.8 trillion, mainly because of booking the entire central bank profit in the first quarter.