In a bid to keep the $6.7 billion bailout programme afloat, Pakistan has assured the International Monetary Fund (IMF) that it will introduce a mini-budget and slow down development spending to create a cushion of Rs145 billion in case problems arise in delivering the budget deficit target.
“To help ensure programme targets can be met, the [Pakistani] authorities have identified several contingency measures that can be implemented if the expected fiscal adjustment begins to fall short of the objective,” an IMF report revealed on Monday.
The objective IMF mentions is keeping the budget deficit – the gap between income and expenses – equal to 4.8% of the country’s GDP or Rs1.398 trillion. This is lower by 0.1% of the GDP – or Rs32 billion – than the target approved by Parliament.
According to the written assurance, the government, on the revenue side, plans to eliminate statutory regulatory orders (SROs) in fiscal year 2015-16 if tax revenues fall below the level envisaged in the programme. For 2015-16, the government has already given an SRO-elimination plan that promises slating the orders equivalent to 0.3% of the GDP or Rs81 billion at the current size of the economy.
These Rs81 billion measures will be over and above the Rs231 billion net new taxes that the government imposed from July 1. For the new fiscal, the government has set a Rs2.81 trillion tax target that many, including the Federal Board of Revenue (FBR), privately admits is unachievable.
“The chances of a mini-budget are high as FBR cannot collect more than Rs2.6 to Rs2.65 trillion in this fiscal year … this is what I told the finance minister before the finalisation of the budget,” said Dr Ashfaque Hasan Khan, a renowned economist and member of the Economic Advisory Council.
“On the expenditure side, we will again reduce expenditure allocations in the first nine months of the year compared to the budget to create a reserve against any shortfall,” Finance Minister Ishaq Dar assured the IMF. This policy is consistent with a contingency plan that the government adopted in the previous financial year, which led to a severe under-spending on the development side.
Pakistan has assured that these measures could yield savings amounting to 0.5% of the GDP or Rs145 billion. “In any case, we stand ready to take compensatory measures as needed, including adjustment on the revenue side, to reach our fiscal target,” the finance minister told the IMF.
According to independent economists, such policies are anti-growth and will adversely affect the current fiscal year’s economic growth rate target of 5.1%. Apparently, the IMF doesn’t trust the government will achieve this target. “For FY2014-15, the economy is forecast to expand by around 4%,” the international lender noted in its report.
New surcharge
Pakistan has also assured the IMF that it will slap a new surcharge on electricity consumers to recover the circular debt if the National Electric Power Regulatory Authority (NEPRA) rejected its plan to recover circular debt from consumers by increasing tariffs. The report puts the total circular debt at Rs500 billion.
New conditions
The IMF has imposed four new conditions on Pakistan after the government showed reluctance in reforming some of the critical areas. These conditions, known as structural benchmarks, are steps to give real operational independence to the State Bank (SBP).
The second new condition is filling vacancies in the NEPRA board by end of current month. The third condition is offering minority shares in UBL and PPL to domestic and international investors, which has been met.
Published in The Express Tribune, July 8th, 2014.
COMMENTS (16)
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Eliminate subsidies (your broke and can't afford them), make sure everyone pays their utility bills, tax the rich, and temporarily cutoff expensive and non critical expenditures such as cruise missiles, nukes and other items which are useless against the fight with extremist. Solutions isn't complicated - just requires leadership.
Shallow critics; Do you know that MOST of the loans are taken to payback the previous loans , otherwise Pakistan will go in default..It will take time and a steady growth to come out of this vicisuos cycle .But how can we acheive the steady growth with IK teaming up with loosers to stop it?For many making Govt fail is more important than growth and progress and Govt. own follies are not helping either.
Do not SLOW DOWN DEVELOPMENT spending. Development spending creates jobs and boosts the economy. Ensuring TAX compliance will alleviate some of the problems. Decreasing corruption in the development spending will also help. Timely collection of electricity dues and curbing the theft of electricity will also help. Government is their to run the country, therefore it must sell all it's non core undertakings e.g. Pakistan Airlines, Steel Mills etc. Let the private individuals buy them and run them.
I trust Ishaq Dar with this. He is the most capable finance person in the country, and I'm sure he damn well knows what the repercussions are. You have to be pragmatic with your policies, and things will take time to improve under PML-N as they've only had one year in office. Idealistic fools can go live in their KPK paradise.
The comments on here defies logic. They want power, they want infrastructure, they don't want to pay taxes and they don't want the government to take any loans. Where do they think the money will come from? If you want to see how Pakistan would be under PTI, look at KP.
PML-N on course to make Pakistan new Greece and Argentine who borrowed loans in billions and now struggling to pay them back infact labeled as defaulters already.
The bail out not 'if needed' but 'when'.
there is also a need to increase the tax base not the tax rates. This is need of the time for FBR.
Already fuel adjustment charges has been added to electricity bills which are collected from last year date and yet they are putting more burden on consumers. Beside this government is reluctant to give metro bus project , laptop schemes and many such activities name of development, which sorry to say is not development as per the rules of economics and development economics to be more precise. So better try to define development indicators more clearly and work on them as they will lead the country to prosperity. As far as growth is concerned Pakistan at this time need a consistent 7-8 percent of GDP growth for a decade to be in the line to become developed countries. But we have to make our course of action in right direction as we are moving in one direction and try to reach the goals without knowing the route. Making country highly indebted and not utilizing resources within the boundary is a dilemma from which we need to come out. Also there is a need for institutional reforms which is just a name here, if there are no institutional reforms stop dreaming of development as your institutions are not working properly.
Dear Government taking 6.7 billion dollar from IMF at this point of time is worst ever step you will be taking because common man cannot buy using dollar for that SBP need to print the currency and more you print more you are shooting inflation up and cut down the purchasing power of a common man.
The solution is simple. Either tax everybody across the Board or tax the already taxed. So every populist government has gone with the latter: tax the already taxed. Even this Government follows this latter policy, they should do it properly: and logically tax those making the most money: banking, cement and textiles. But wait, these are all owned by Mian Mansha!!!
Government needs to give us all a break and either tax across the Board (which would include themselves) or then tax the richest (who are their friends). Otherwise no way, they're going to raise the extra 145 billion or so they need.
Finance minister cannot control "aalo" in this country. 3 mini budgets on their way as a gift by Noora league for Pakistanis!!
FBR will not be able to collect more than Rs 2.55 Billion..Please remember that last year to achieve thrice reduced budget target, FBR took tax advances of about Rs 40 billion and withheld refunds of over Rs 165 Billion.. These will have to be paid. FBR needs major reforms and FBR should for next 2 years deploy atleast 30% of it's work force for broadening of the tax base
A totally incompetent finance ministry that is lying to the public in the name of giving a "balanced budget" when it surrenders a little while later to bring out a mini budget. No chances of economic progress under Mr. Dar.
The Taliban May cripple this country.......but the way our finance minister is functioning he WILL cripple this country..........borrowing without the ability to pay back is a sure shot way to cripple a country.......AND THE LENDERS KNOW THIS.