difficulty.
The fiscal side of the economy is real problematic area in the wake of expected shortfall in the revenue collection of the Federal Board of Revenue (FBR). The government had envisaged annual tax collection target of Rs2,810 billion and the IMF had already projected downward revision from Rs2,810 billion to Rs2,756 billion. However, economists say the FBR’s tax collection will stand at the maximum of around Rs2,550 to Rs2,600 billion.
In order to bridge the gap, the government has jacked up the general sales tax (GST) rate from 17 percent to 22 percent on POL products in order to offset the revenue losses because of reduction in oil prices in the international market.
The subsidy to the power sector will also decline because of falling prices of the furnace oil so it will help curtail the budget deficit close to the level agreed with the IMF for the current fiscal year.
The interest rates are on the declining trend in the wake of decreasing inflation because of base effect in the same period of the last fiscal year, but it will rebound in the second half (January-June) period of the current fiscal year because of the possible upsurge in the energy prices. But inflation on an average will remain around seven percent so the discount rate will also come down.
“In the wake of possible reduction in the interest rates, Pakistan’s debt servicing will be scaled down by Rs120 to Rs130 billion during the current fiscal year on account of both external, as well as domestic loans,” official sources said.
However, the government would be able to get savings in debt servicing and subsidy amounts, which will compensate the FBR’s shortfall. If need arises, then the development budget will be slashed down in order to keep the budget deficit at around five percent of GDP.
Finance Minister Ishaq Dar had managed external front of the economy by keeping the IMF programme on track that resulted in touching the foreign exchange reserves of $15 billion mark in December 2014, as Islamabad got $1.1 billion from the IMF, as well as successfully launched Sukuk bond worth $1 billion.
Now the balance of payment crisis is over for the short- and medium-term after increasing the foreign currency reserves and expected saving in the import bill to the tune of $4 billion, but the worrisome indicator is declining trends in fetching exports of Pakistani made-ups, which would become headache for the economic managers on the long-term basis.
There is a silver lining on the economic front, as well. If Islamabad manages to attract committed Chinese investment of over $40 billion and start moving towards materialising projects under China-Pakistan Economic Corridor (CPEC), it can boost the sluggish economy of Pakistan.