Pak budget deficit may go up by 0.3pc to 4.6pc of GDP: IMF

ISLAMABAD: The IMF has projected that Pakistan’s budget deficit might increase by 0.3 percent of GDP, going up to 4.6 percent against the envisaged target of 4.3 percent for the ongoing fiscal year 2015-16.
The IMF assessed that the Public Sector Development Programme (PSDP) at the federal level was expected to be slashed down from Rs663 billion to Rs636 billion in order to achieve the desired budget deficit target.
In its latest report on Pakistan, the IMF states that the FY2015/16 revenue and deficit targets remain attainable though downside risks have increased.
The Pakistani authorities continue to target a deficit of 4.3 percent of GDP (including an adjustor of 0.3 percent of GDP for critical one-off spending) in FY2015/16.
Risks to this target are linked to the possibility of renewed spending overruns by provincial governments, the effects of the continued fall in international commodity prices and lower domestic inflation on customs duties and taxes, additional support for farmers, base effects stemming from deviations from the program targets in FY 2014/15, and minor changes in some revenue measures introduced during the parliamentary budget process.
The IMF staff estimated a gap of 0.2 percent of GDP on account of the latter three factors and assessed that other risks could lead to a potential deviation of up to 0.3 percent of GDP, which means that the budget deficit might hike to 4.6 percent of GDP against 4.3 percent target.
However, Pakistani authorities remain committed to the programme targets and have identified measures to take as needed. They will reallocate current spending to accommodate additional support for farmers. Apart from that, they noted that in their present assessment they would be able to reach the targets without other new measures, but if necessary, would bring forward plans to eliminate tax concessions and exemptions slated for FY2016/17 (including on income tax and GST).
In addition, as usual, the authorities will reduce expenditure allocations in the first nine months of the year compared to the budget to create a reserve against any deviation.
Regarding the provinces’ performance, the provincial finance secretaries agreed in the context of the FY2015/16 budget discussions to increase the provincial budget surpluses consistent with the program in FY2015/16.
To this end, total provincial spending will be maintained at 6.5 percent of GDP and total provincial tax and non tax revenues are projected at 1.1 percent of GDP.
Finance Minister Ishaq Dar in his written commitment by signing the Letter of Intent (LOI) assured the IMF that they stand ready to take additional revenue measures to attain the budget deficit target of 4.3 percent of GDP (excluding grants) in FY2015/16 (including an adjustor of 0.3 percent of GDP for critical one-off spending). “While we feel confident that we can meet the FY2015/16 fiscal deficit and revenue targets on current policies, we are mindful of the potential challenges to our fiscal targets, for example, from the renewed fall in international commodity prices and lower domestic inflation.
“To mitigate these risks, we would take additional revenue measures, including bringing forward plans to eliminate the SROs slated for 2016–17,” he assured the IMF.