Islamabad:
The International Monetary Fund is ready to allow about RS500 billion adjustments within the budgets to offset the impact of flooding, but without compromising on the overall goal of maintaining fiscal discipline.
But Pakistani authorities insist on getting relaxation immediately against the primary budget surplus annual targets, according to the federal and provincial authorities participating in these negotiations.
Punjab, which is the worst -affected province, also remains conditional obliged to deliver the RS740 billion cash surplus, provided that the Federal Board of Revenue meets its RS14.1 trillion target. The provincial government is still looking for fiscal space to meet the cost of rehabilitation of the people affected by the floods.
The Pakistani authorities had formally sought relief in the goals of the primary budget surplus and the cash profits from the IMF to meet the new expenses for rehabilitation of the flooded people, the sources added.
The government sources said that the IMF has not yet agreed to lower these goals, but are willing to make within budget adjustments.
The IMF’s attitude is not good with the federal and provincial authorities facing the challenge of meeting these expenses without external assistance. If budget adjustment is accepted, it will tie the hands of the federal government that is already facing tax challenges.
There have also been cases where the IMF relaxed targets in some other countries to meet the unforeseen expenses. But so far it is unwilling to allow the extra space.
The sources said it occurred during these discussions that there is a minimum RS500 billion influence of the floods on revenue and expenses.
They said the IMF was ready to allow these adjustments and offset the impact on the primary balance by cutting the public sector development program (PSDP) and using the budget emergency pool.
The sources said that FBR’s target may be revised downwards with RS170 billion to RS13.96 trillion. The IMF was also ready to reduce the federal government’s non-tax revenue and Punjab’s targets for agricultural income tax, they added. The impact of non-tax revenue mainly in the trapped tax and the provincial revenue is RS140 billion, the sources said.
The sources said that the IMF has also assessed that the provincial expenses can also exceed by approx. RS150 billion due to flood -related costs.
As an alternative, the IMF has suggested that the federal government should cut PSDP with RS300 billion and another RS150 billion to be taken out of the emergency pool intended for such emergencies. This will have zero impact on the overall primary excess target.
The sources said that the Pakistani authorities were of the opinion that Pakistan should be provided further tax space rather than allowing budget adjustments to allow. The IMF was reluctant to give additional space at this time, they added.
There is a strong perception that the IMF should provide additional space and reduce the primary budget surplus target by approx. RS500 billion or 0.4% of GDP.
For this financial year, the IMF has set the primary budgetary target to RS3.1 trillion or 2.4% of GDP and the cash surplus target of the four provinces for RS1,464 trillion or 1.1% of GDP. But the primary balance is associated with the province’s ability to generate cash surplus and the FBR’s ability to achieve the target of RS14.13 trillion.
There was fear that Punjab’s government, which suffered major losses, may not be able to meet its cash surplus target.
However, the Minister of Information for Punjab, Miss Azma Bukhari, said the provincial government remained obliged to complete his part of the promise, provided that FBR reached his goal.
“Punjab is obliged to the estimated provincial proportion of RS740 billion (which is) conditioned by FBR that meets his target for RS14.1 trillion,” Azma Bukhari said, answering a question from the Express Pakinomist.
To another question, Miss Azma said Punjab did not inform the IMF that it did not deliver the RS740 billion cash surplus target.
During the IMF program, Punjab’s RS740 billion cash surplus is very critical of the federal government’s ability to meet the condition of showing the primary budget surplus. Azma said Punjab expects FBR to reach its target for RS14.1 trillion and pose its deficit so far.
There is hardly any possibility that FBR would achieve its annual goal, just like the previous financial year. Even if there is an agreement on downward revision of FBR’s target with RS167 billion, the new target of RS13.96 trillion is not achieved.
FBR has already missed its goal in the first quarter with a wide margin of RS198 billion despite assuming drastic legal powers.
FBR’s failure costs the provincial government a lot, which is then forced to reduce their planned expenses. In the last financial year, the government had to increase the petroleum tax rates to equalize the effect of missing out on the FBR target of the overall primary budget surplus target.
In the last financial year, the Punjab government had to take a hit of almost RS500 billion due to FBR.
The IMF-FBR meeting on this financial year’s revenue collection remained under the government’s expectations after FBR could not satisfy the IMF that it had a credible plan to achieve the annual RS14.13 trillion target.
To a question, Punjab’s Minister of Information said the investigation into the flood damage assessment is in progress and Punjab will have better visibility on post-flat-related expenses when this study is completed.
There is a possibility that the provincial government of Punjab may need to make adjustments in its current and development budgets to create space to spend on the rehabilitation of people while remaining within the overall IMF umbrella.
The sources said that the macroeconomic targets, mainly inflation, economic growth rate and losses in ongoing account were still open to IMF decisions.
The government threw a 3.5% to 3.9% economic growth target after river, while the IMF’s assessment was that GDP growth may not increased by more than 3% in this financial year. The inflation target is also open to discussions.
The Ministry of Finance set a projection projection after $ 500 million after surplus after flooding, but it may not have been agreed by the IMF due to higher than expected imports of goods and shrinking exports.
