Monday February 26, 2024

IMF gives govt options for plugging Rs600bn fiscal gap

The Fund now asks the government to jack up the FBR’s tax collection target

February 03, 2023
International Monetary Fund. — AFP/File
International Monetary Fund. — AFP/File

ISLAMABAD: The International Monetary Fund (IMF) has conveyed to the Pakistani authorities to undertake substantial qualitative and sustainable tax and non-tax revenue measures to fetch additional revenues for filling the projected gap of Rs600 billion in the fiscal framework.

The Fund now asks the government to jack up the FBR’s tax collection target to align it with the projected nominal growth in the current fiscal year mainly with the help of a surge in the CPI-based inflationary pressures. The government is still toying with its options of either jacking up the petroleum development levy (PDL) beyond the maximum limit of Rs50 per liter by making an increase of Rs20 to Rs30 per liter for allowing to charge Rs70 or Rs80 per liter or slapping 17 percent GST on the petroleum products for the remaining period of the current fiscal year.

Alarmingly, the foreign exchange reserves nosedived to just $3.08 billion held by the State Bank of Pakistan (SBP) as of January 27. The country faces a double-edged sword, as the dollar inflows in shape of loans from multilateral and bilateral have severely choked and shrunk.

Latest official data of the Economic Affairs Division (EAD) shows that the country could fetch loans of just $5.59 billion in the first half (July-Dec) period of the current fiscal year against a total projection of $22.6 billion. Pakistan had received total disbursements of loans and grants to the tune of $9.13 billion in the same period of six months during the last financial year 2021-22.

This indicates that there was a massive decline in receiving disbursements from international creditors, resultantly the country was heading towards default.

In such a prevailing precarious situation, the IMF is in town for holding parleys with the authorities making renewed all-out efforts for striking a staff-level agreement for completion of 9th review under $6.5 billion Extended Fund Facility.

On the fiscal front, the IMF seems ready for providing adjuster on flood expenditures once the fiscal framework finalises. But it will depend on how much expenditures could be occurred on floods both on development and non-development side of the budget especially through disbursements of stipends through BISP program.

First and foremost, the IMF and Pak authorities will have to reconcile a figure on the fiscal gap. Once it’s determined, then it will pave the way for finalizing tax and non-tax revenue measures through the upcoming mini-budget.

The FBR high-ups informed the IMF team that they would be able to materialize their annual tax collection target of Rs7,470 billion keeping in view the recent devaluation of rupee against dollar and possibility of removing restrictions on imports on the basis of possibility of resuming the IMF program.

The IMF is asking the authorities to increase the FBR’s annual taxation collection target to align it with increased nominal growth as the CPI based inflation touched whopping figure of 27.6 percent while real GDP growth might hover around 2 percent so this nominal growth must translate into increased revenue collection target.

Now the government will have to make up its mind for increasing the limit of PDL beyond Rs50 per liter up to Rs70 or Rs80 per liter or impose 17 percent GST on POL products.

There is an argument that if the government slapped 17 percent GST, it will become part of the Federal Divisible Pool (FDP) under the NFC Award. So the best option is to jack up the POL levy through a presidential ordinance. The IMF favors the imposition of 17 percent GST on POL products on the pattern of consumption tax to discourage.

Again the government is exploring its options for utilizing the data gathered in the BISP survey for providing targeted subsidies to motorcycle owners on petrol.