IMF hails Pakistan for primary budget surplus

ISLAMABAD: Pakistani authorities managed to keep budget deficit at 0.9 percent of GDP, or around Rs400 billion, during the first quarter of the current fiscal – an achievement that was hailed by the IMF, but the country was advised to ensure full use of the budget to achieve the development goals, sources said on Friday.

Sources said the International Monetary Fund (IMF) Mission Chief Ramirez Rigo Ernesto praised the Pakistani authorities to restrict the budget deficit within the desirable limits. The primary balance was kept in surplus for the first quarter of the current fiscal year as opposed to the anticipation of Rs102 billion deficit.

A finance ministry’s statement said IMF Ernesto lauded the financial and fiscal management and maintenance of expenditures within the budget. However, he stressed on a full use of the development budget to achieve the development goals.

Ernesto said this during a meeting with Adviser to the Prime Minister on Finance and Revenue Hafeez Shaikh to review the implementation of fiscal policies in the provinces under the IMF program.

IMF mission chief emphasised upon harmonisation in the tax system and creation of a single tax base “as it directly impacted on the ease of doing business and went a long way in creating an enabling business environment and boosting confidence of the investors and businessmen”.

“Pakistan has a continental size economy, much like the Western Europe where everybody has the same definition of the tax rate and services, and the same could be achieved in Pakistan through uniform tax rates and a single tax administration instead of two or three tax authorities in each province,” the statement quoted him as saying.

Ernesto appreciated the current level of understanding between the centre and provinces and hoped such efforts would continue to build consensus and bring about greater harmony through a harmonised mechanism.

Pakistan and IMF agreed to keep the budget deficit at 7.2 percent of GDP for the current fiscal year as against 8.9 percent of GDP for the last fiscal year. Keeping budget deficit below one percent of GDP is commendable, but the country's deficit could be divided into 40:60 ratio in the first and second half of the fiscal year, keeping in view historical trends of the last two decades.

The government would have to keep budget deficit on lower side in months and quarters ahead of the remaining period of the current fiscal year to achieve the target. Finance adviser Shaikh said the federal and the provincial governments are in a continuous dialogue to improve coordination and create harmony on issues related to fiscal and budget management, multiplicity of tax rates and reconciliation of input adjustment.

“Harmonisation of taxation and other fiscal issues within the constitutional framework is a challenging process but a continuous dialogue and coordination between the centre and the provinces and between the provinces themselves has resulted in better budget and expenditure management,” he said. “Definitional issues related to what constituted a service and what rate of tax applied to it in different regions are also being resolved in a spirit of mutual understanding and accommodation.”