Increasing revenue shortfall risking IMF package

ISLAMABAD: Amid falling short of the tax target with a margin of Rs149 billion in November, the FBR’s revenue shortfall ballooned to Rs338 billion in the first five months, making crystal clear that wrong assumptions led to breakdown of the fiscal framework fallen apart under the IMF program.

With increasing instability on the country’s political horizon, the IMF program will be heading towards a risky zone with an increased revenue shortfall. The FBR had made internal projections that it might face a shortfall of Rs321 billion for the first half (July-Dec) period, but the shortfall already exceeded this and stood at Rs338 billion in five months.

The FBR has collected Rs4.3 trillion in five months of FY2024-25. Now, it will have to fetch revenues of Rs1.71 trillion this month to achieve an indicative target of Rs6.009 trillion by December 31, 2024, under the IMF program. In case of further shortfall, the IMF program will enter into a danger zone on the occasion of the first review scheduled to be held in Feb-March of 2025. Both the IMF and the Ministry of Finance had struck the $7 billion Extended Fund Facility (EFF) on the basis of wrong assumptions on a macroeconomic and fiscal framework for 2024-25 as it fell apart into pieces where all major numbers proved wrong starting from envisaging the real GDP growth rate, Large Scale Manufacturing (LSM), receding CPI-based inflation at faster pace, declining imports and now falling short of revenue collection than envisaged at the time of finalizing the IMF program. Now the IMF will come up with its prescription of a mini-budget for 2024-25 in Feb-March 2025 when there will be much limited time for any course correction in the remaining period of the current fiscal year.

Despite hiring consultancy of McKinney with a grant of Karandaaz by doling out at least Rs1 billion and granting approval of the FBR’s Transformation Plan with the taxpayer money of Rs 32.5 billion, the FBR miserably failed to materialize the revenue collection target. One top official of the FBR told The News that the country was still going through import compression which was making half of the revenue static. The CPI-based inflation and markup rates are declining, resulting in bringing down tax revenues. The compensatory real GDP growth is going through a time lag. “This is a typical stabilisation phase in which revenues will continue to suffer till February 2025 and then the turnaround will start happening from March 2025 onwards,” said the official. However, independent tax experts opined that the front- loaded design of the IMF program resulted in fixing the FBR’s tax collection target of Rs12,913 billion (Rs12,970 billion approved by parliament) against a revenue collection of Rs 9311 billion for the last fiscal year 2023- 24, requiring a growth by 40 per cent. So far, the FBR has achieved growth in the range of 23 per cent so the FBR’s shortfall ranged around more than 17 per cent. The FBR did not prefer issuing any official press statement till filing this report on Saturday night.