Saturday May 18, 2024

Govt faces dilemma on subsidies: Question on meeting IMF’s demands lingers on

An initial draft of the macroeconomic framework shows that the government will have to make very tough choices for presenting the next budget for 2022-23

By Mehtab Haider
May 13, 2022

ISLAMABAD: The government is facing a catch-22 situation as to how it undertakes number crunching for presenting the next budget that can dole out the targeted subsidies on the one side and on the other side also satisfies the IMF for reviving the stalled $6 billion programme.

An initial draft of the macroeconomic framework prepared by the Ministry of Finance shows that the government will have to make very tough choices for presenting the next budget for 2022-23, whereby the development budget is likely to be curtailed to Rs500 billion for creating more space for provision of the targeted subsidies against revised estimates of Rs600 billion utilisation under the Public Sector Development Programme (PSDP). The PSDP was initially envisaged at Rs900 billion on the occasion of the last budget for 2021-22.

Top official sources confirmed to The News on Thursday that the Minister of State for Finance and Revenues Dr Aisha Ghous Pasha held a meeting with the Ministry of Planning and Pakistan Bureau of Statistics (PBS) officials for getting their input to finalise the Budget Strategy Paper (BSP) for the next budget 2022-23 and revise the macroeconomic projections for the outgoing fiscal year 2021-22, ending on June 30, 2022.

An official commented that the incumbent regime seemed confused watching London as to what kind of decision the political leadership would take for the purpose of number crunching and to satisfy the IMF for striking a staff-level agreement for the revival of much-needed Fund programme. When the official inquired about the reasons for increased confusion, he cited an example and stated that in one of the recent meetings, the economic team briefed the cabinet about the requirement for reversing the fuel subsidies in order to revive the IMF programme. They also briefed the cabinet about the IMF's demand to increase both the POL and electricity prices.

On this occasion, the official quoted one political leader of a mainstream political party by saying while addressing PM Shehbaz Sharif that they all were part of the coalition government and would accept the decision taken by the prime minister but they could not recommend a hike in POL and electricity prices, keeping in view the miseries of inflation that has struck the masses. In such circumstances, the official said, the government was frightened of any backlash if the prices of POL and electricity were increased even in a staggered manner. This indecisiveness is going to cause a heavy toll on the economic front. Now it is expected that the ongoing deliberations in London will pave the way for removing the lingering confusion and the economic managers will devise strategies to proceed further. Then in the last step ahead, they will take their coalition partners into confidence about the proposed harsh steps required to avoid looming insolvency on payment of external obligations within a few weeks period.

Meanwhile, the government has been finalising its Budget Strategy Paper and macroeconomic framework for the next budget. The Ministry of Finance and Ministry of Planning as well as the Pakistan Bureau of Statistics possessed divergent views on initial projections for the provisional GDP growth figures for the outgoing fiscal year 2021-22. The Ministry of Finance presented its GDP growth projection in the range of 4.3 percent for the current fiscal year on the basis of rebasing national accounts. However, the Ministry of Planning and PBS representatives argued that the official data for the first nine months (July-March) was projecting provisional growth figures of over 5 percent for the current fiscal year. Now the Ministry of Finance and Planning Ministry officials were directed to work together and finalise the GDP projections. It is relevant to mention that the National Accounts Committee (NAC) was expected to meet next week for finalising and announcing the provisional GDP growth figures.