The Pakistan Tehreek-e-Insaf (PTI) led government had revised budgetary estimates for 2018-19 that clearly indicated the government was all set for knocking at the door of the International Monetary Fund (IMF) for securing another bailout package to overcome the looming crisis on internal and external fronts of the economy.
It was quite surprising for everyone that the same old team at Ministry of Finance and FBR prepared the revised budget and not even a single face that had made the budget for 2018-19 during the tenure of the last Pakistan Muslim League (N) was changed.
Former Economic Advisor and Member of newly established Economic Advisory Council (EAC) Dr Ashfaque Hassan Khan argued that how the government could bring any visionary change with the same old team? He said that this kind of patchwork in revised budget would not provide any solutions to external front of the economy and it seemed that the government would be going back to the IMF.
If it is so then the PTI-led government had adopted a flawed strategy because instead of using triumph card in their hand for negotiating a favorable deal, they jacked up gas prices up to 143 percent in one go.
Now the IMF will come on the table with a package of more tough conditions and Islamabad will have to strive to strike a win-win situation for the both sides.
Further devaluation of rupee against dollar could be among the conditions in order to boost exports and discourage imports despite the fact that Pakistani rupee had witnessed steep depreciation in last few months.
The government will have to strategise as to how they will convince the IMF on negotiation table for securing a front-loaded package.
Former Finance Minister and renowned economist Dr Hafiz A Pasha when contacted criticised the government, saying that they must have kept the triumph card of increasing gas prices close to their chest and used it for negotiating a good deal with the IMF.
He said the usual tactics were used in the revised budget process as revenues were overstated and expenditures were understated so the budget deficit might exceed the envisaged target of 5.1 percent of Gross Domestic Product (GDP) for the current fiscal year.
Now the IMF Staff team is scheduled to visit Pakistan this week from September 27 and will stay in Islamabad for almost one week to reconcile projections on macroeconomic front as it will be the pre-requisite for evolving a staff-level agreement in case Islamabad opts for the IMF package. Keeping the existing macroeconomic situation in view, only a miracle can save Pakistan from entering into the 22nd arrangement with the IMF.
Through the revised budgetary estimates for 2018-19 before the Parliament, the government made fiscal adjustments of Rs815 billion or 2.1 percent of the GDP for bringing down the budget deficit from projected 7.2 percent to 5.1 percent of the GDP by slashing down development outlay and raising tax rates for higher income bracket as well as making imported products more expensive.
The budget deficit target was revised upward to 5.1 percent of the GDP from earlier 4.9 percent projected by the last Pakistan Muslim League-Nawaz (PML-N) led regime.
In the revised estimates, the interest payment on domestic and external debt would remain the largest ticket item of expenditure side as it would consume Rs1,842 billion in accordance with revised budgetary estimates against earlier envisaged amount of Rs1,620 billion. The interest payment on loan repayment increased because of steep depreciation of rupee against dollar during last few months, hiking repayment amounts.
On the overall tax revenues of the country, the PTI led government assessed to generate revenue to the tune of Rs5,309 billion in accordance with revised estimates against Rs5,246 billion made on the eve of the last budget presented by the last government.
Total projected expenditures were estimated at Rs5,309 billion and after providing resources to provinces under NFC Award, the budget deficit was estimated at Rs1,979 billion or 5.1 percent of the GDP against earlier envisaged target of 4.9 percent of the GDP.
Out of total gross revenue receipts of Rs5,661 billion, the provinces share into NFC award will be standing at Rs2,569 billion in accordance with revised estimates against earlier envisaged target of Rs2,590 billion.
The FBR’s tax collection target has been revised downward from Rs4,435 billion to Rs4,398 billion, other taxes from Rs454 billion to Rs322 billion, non-tax revenue target was increased from Rs772 billion to Rs893 billion. The net revenue receipts remained at Rs3070 billion after dishing out NFC share to provinces.
Although, Asad Umar, the minister for finance, criticized the last government for making budget on wrong assumptions whereby they had projected revenue surplus of Rs286 billion specifically; however, the revised budget document for 2018-19 showed that the PTI-led government also estimated the same amount of revenue surplus from the provinces to lower down its budget deficit.
If this revenue surplus is excluded then the budget deficit will go up by 0.8 percent of the GDP.
The budget deficit of Rs1,979 billion or 5.1 percent of the GDP will be financed through domestic and external borrowing as the government intends to get domestic bank borrowing to the tune of Rs1,072 billion, external borrowing of Rs374 billion, revenue surplus from provinces Rs286 billion, and capital receipts of Rs533 billion.
On expenditure side, total estimated expenditures would be standing at Rs5,309 billion including current expenditures of Rs4,413 billion. The debt servicing will consume Rs1,842 billion, pension Rs367 billion, defense Rs1,100 billion, grants and transfers Rs469 billion, subsidies Rs175 billion, and running of civil government Rs460 billion. The overall development spending was slashed down from Rs1088 billion to Rs898 billion including the federal Public Sector Development Program (PSDP) was reduced from Rs800 billion to Rs575 billion. The federal PSDP allocation stood at Rs725 billion including Rs575 billion from the budgetary side, while remaining Rs150 billion will be financed through public private partnership and other innovative avenues.
Now the time has come when the government must make up its mind whether to go back to the IMF or not and first of all they should devise a strategy to negotiate the best available deal with the IMF. It will certainly not be an easy or smooth sailing as the best deal cannot be secured with haphazard approach. For this a strategy will have to be finalised in consultation with all stakeholders.
The government’s economic team should realise that there are tough times ahead for the economy. Braving those times will be next to impossible without comprehensive and synergised planning and execution of right strategies. Such measures are a must to achieve the desired objectives of stabilisation at the first stage and growth momentum on sustained and long-term basis at the second.
The writer is a staff member