The IMF found an over Rs 2000 billion (Rs2 trillion) breach in budgetary estimates for 2022-23 in its initial assessment that might result in escalating the budget deficit and primary deficit targets with a massive margin
ISLAMABAD: The International Monetary Fund (IMF) has found an over Rs 2000 billion (Rs2 trillion) breach in budgetary estimates for 2022-23 in its initial assessment that might result in escalating the budget deficit and primary deficit targets with a massive margin.
The fiscal slippages and reconciliation of figures will be the major part of the bone of contention of upcoming parleys between Pakistan and the IMF. The government had envisaged a budget deficit target of 4.9 percent of GDP and a primary deficit to keep it at positive 0.2 percent of GDP on the eve of the budget for 2022-23.
“At the moment, the IMF is asking Pak authorities to take additional taxation measures of Rs600 billion through a mini-budget,” said the sources and added that Pakistani authorities did not agree to it at all and argued that the primary deficit would not escalate up to such an extent at all. Now there are listed areas where both sides have divergent views and will have to sort out the differences to move toward striking a staff-level agreement by February 9, 2023.
The senior officials of the IMF have taken the decision that they will incorporate a hike in circular debt of Pakistan’s cash-bleeding energy sector beyond the agreed limit with the Fund as part of the primary deficit for the current fiscal year 2022-23. It is relevant to mention here that the primary deficit is calculated after the exclusion of debt servicing requirements.
Meanwhile, Pakistan asks the IMF for granting a waiver of Rs500 billion for flood expenditures for calculating the budget deficit especially the primary deficit for the current fiscal year 2022-23. “The IMF has so far calculated that the primary deficit target of 0.2 percent of GDP will be breached with a massive margin with a whopping figure of over Rs1 trillion,” top official sources confirmed while talking to The News here on Friday.
The IMF has assessed that the government did not recover the Fuel Price Adjustment of Rs 65 billion for the current fiscal year. The government doled out concessional electricity and gas to the export-oriented sectors which resulted in an increased requirement of Rs110 billion. There is no provision in the budget. There are slippages in the fiscal side on account of increased requirements of total debt servicing as the government envisaged Rs3,950 billion in the initial budgetary estimates that might now escalate to beyond Rs5,000 billion in the aftermath of the increased policy rate by the State Bank of Pakistan. The debt servicing requirements will be ballooned by Rs1,000 billion.
On the revenue side, the IMF assessed that the FBR’s tax collection is projected to hover around Rs7,000 billion against the FBR’s envisaged target of Rs7,470 billion for the current fiscal year. The FBR had faced a shortfall of Rs225 billion in achieving the December 2022 tax collection target. However, it was argued that the monthly target of December 2022 was fixed wrongly on a much higher side and due to lingering litigation in the courts it could not be recovered but they were hopeful that it would be recovered in the coming months. The FBR has estimated internally that it could face a shortfall of Rs170 billion for achieving the desired target of Rs7,470 billion owing to import compression. On the other hand, the collection of the Petroleum Development Levy will face a shortfall of Rs300 billion for achieving the fixed target of Rs855 billion.
With the incorporation of all these points, the IMF assessed that the primary deficit might escalate to around Rs1.1 trillion or 1.3 percent of GDP. If IMF provides a waiver of Rs500 billion on flood expenditures then the remaining Rs 600 billion gap remained on the fiscal front. “This is the gap of Rs600 billion which the Fund asks to fill through additional taxation measures,” said the official.
Pakistan and the IMF high-ups are scheduled to kick-start parleys from coming Tuesday when Minister for Finance Ishaq Dar will participate in the inaugural session. The IMF’s Mission Chief Nathan Porter is expected to visit Pakistan later on in the coming week for holding policy-level parleys with Pakistan authorities. The IMF high-ups are scheduled to hold talks from January 31 to February 9, 2023, for accomplishing the 9th review under Extended Fund Facility.
When contacted by this scribe, Dr. Khaqan Najeeb, Former Advisor Ministry of Finance said that now Pak authorities must do their homework in terms of fiscal and quasi-fiscal slippages. The shortfall in FBR collection and Petroleum Development Levy needs to be addressed through quality measures of taxation, he added.
Also, in the fiscal deficit, the big hit would come from a breach of almost 1 trillion rupees in the budgeted markup. He said the new unbudgeted subsidies created by concessions to exporters and domestic consumers of up to 200 units being exempted from Fuel Price Adjustment pass-through would also need a plan that how it would be tackled with its possessed fiscal complications.
On the quasi-fiscal side excessive line loss shortfalls in collection compared to agreed benchmarks with IMF are indeed a serious cause of concern and need both administrative and price action, he concluded.