Upcoming budget: Authorities share revised fiscal framework with IMF

ISLAMABAD: Pakistani authorities have shared a revised fiscal framework with the IMF for the upcoming budget and proposed to bridge Rs300 billion shortfall on account of petroleum levy through jacking up the FBR’s target to Rs5.8 trillion.

There is another worrying development occurring on the economic horizon for the country as imports have surged substantially and stood at $5 billion for April 2021. It will result into turning the current account surplus into deficit and the government is projecting $4 to $5 billion current account deficit or 1.3 to 1.5 percent of GDP in the next fiscal year. The higher imports are a good omen for the FBR’s revenues as 40 percent collection is done at the import stage. However, it will put pressure on the external account of the economy. The total size of the federal budget will be over Rs8 trillion for the coming fiscal year.

Pakistan and the IMF high-ups kick-started virtual deliberations from this week whereby both sides deliberated upon salient features of the overall budgetary targets, including macroeconomic and fiscal framework for the next fiscal year 2021-22.

First of all, Pakistan has sought permission to jack up its budget deficit target from the earlier envisaged target of 6 percent of GDP to 6.5 percent of GDP for the upcoming budget. Through this step, Pakistan would get an additional space of Rs262 billion in the coming financial year.

On the expenditure side, the Pakistani side proposed 12.5 percent raise in salaries over and above the disparity allowance and around 10 percent hike for pensioners. Under the macroeconomic framework, the government has envisaged real GDP growth at 5 percent and inflation at 8 percent for the next budget, so the nominal growth would be standing at around 13 percent for the next budget.

The FBR’s tax revenues were pitched at Rs5.5 trillion at the initial stage but now the desired target was jacked up to Rs5.7 or 5.8 trillion for the upcoming budget. The government was forced to increase the FBR’s tax collection because it had to bridge the yawning gap projected to be surfacing on account of non tax revenues in the shape of petroleum levy.

The IMF had envisaged collection of Rs600 billion through the petroleum levy, however, the government lowered the petroleum levy as per liter levy on Motor Gasoline stands at Rs4.74 per liter, kerosene oil zero levy, high speed diesel Rs8.86 per liter and light diesel oil zero levy.

With the existing ratio of petroleum levy, the government will not able to fetch Rs600 billion in the upcoming budget, so the government decided to jack up its FBR collection target by Rs300 billion from Rs5.5 trillion to Rs5.8 trillion.