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May 9, 2020

Fiscal budget 2020-21 under process: Centre faces mammoth challenges to find out ways for revenue

ISLAMABAD: The Centre will have to face serious challenges to support day to day expenditures after paying defence and debt servicing bills from available resources, as the fiscal budget 2020-21 is being prepared on the basis of the existing National Finance Commission (NFC) Award.

However, the government has decided to focus mainly on ‘facilitation’ in the upcoming budget so that the economic activities could be kick-started instead of taking any coercive action.

The revenues could be mobilised through rationalisation of taxes, effective enforcement and administrative measures but it was decided to explore options to burden the rich, if there is no other option left for meeting revenue targets. Meanwhile, the tax authorities are suggesting to avoid to take taxation measures but the final decision to this effect will be taken by the incumbent regime, keeping in view the political cost attached to any action for mobilising more revenue collection efforts.

The number crunching through ongoing budget preparation for the next fiscal year will set the stage for resumption of stalled US$6 billion extended fund facility (EFF) programme of IMF. Pakistan looked very appreciative to the IMF as it came forward to providing US$1.4 billion under the Rapid Finance Instrument (RFI). The Ministry of Finance authorities informed PM Imran Khan about preparation of upcoming budget and argued that without rationalisation of expenditures in targeted subsidies, especially for power sector and curtailing losses of public sector enterprises (PSEs), it would become impossible to create a fiscal cushion for development after transferring of financial shares to the federating units and paying defense and debt servicing bills on expenditure heads.

Under the existing NFC arrangements, the Federal Divisible Pool (FDP) is distributed with ratio of 57.5 per cent and 42.5 per cent among the provinces and the federal government. If Centre collects Rs100 per year, it goes to provinces up to Rs60 to 62 through share in the FDP and other subvention accounts while remaining Rs38 left for the Centre to do the business.

One top official of finance division confided to ‘The News’ on Friday evening that the ministry briefed the PM that the economy was performing well during the pre-COVID-19 scenario as the twin deficits such as the budget deficit and current account deficit were under control. It was argued that the IMF/World Bank as well as ADB came forward to rescue Islamabad because the multilateral lenders were happy with the performance on the economic front in first nine months.

“The post COVID-19 situation poses serious challenges for the economy as the country is under the IMF program and the government will have to come up with budgetary numbers to give direction to the economy,” said one of the top officials of the finance ministry. The government has agreed with the IMF for envisaging FBR’s collection target at Rs5,101 billion for next budget against revised target of Rs3,908 billion for the outgoing fiscal year ending on June 30, 2020. The FBR requires 31 percent growth for achieving the desired target of next fiscal year.

With nominal growth of 10 per cent, including 2 per cent real GDP growth and 8 per cent inflation, the FBR will have to meet its next fiscal year target with additional 20 per cent growth coupled with nominal growth of 10 per cent. The tax collection target will mainly depend upon prevalence of coronavirus over the next fiscal year and how economic situation unfolds. So the budgetary targets are evolving with the passage of time but the government will have to come up with clear-cut number crunching till first week of next month.