Islamabad:
The International Monetary Fund is ready to allow adjustments of approximately 500 billion rupees within the budgets to compensate for the impact of floods, but without compromising the general objective of maintaining fiscal discipline.
But the Pakistani authorities insist on relaxing for the same amount against the annual objective of the primary budget surplus, according to federal and provincial authorities participating in these negotiations.
Punjab, which is the worst affected province, also remains conditionally committed to delivering the cash surplus of RS740 billion, provided that the Federal Income Board fulfills its objective of RS14.1 billion. The provincial government is still looking for fiscal space to satisfy the expense in the rehabilitation of people affected by floods.
The Pakistani authorities had formally sought relief in the objectives of the surplus of the primary budget and the IMF cash surplus to meet the emerging spending in the rehabilitation of the people affected by the floods, the sources added.
Government sources said the IMF has not yet agreed to reduce these objectives, but is willing to do within the budget adjustments.
The IMF position is not a good amount of federal and provincial authorities that face the challenge of complying with these expenses without any external help. If the budget adjustment is accepted, it will link the hands of the federal government that already faces fiscal challenges.
There have also been cases in which the IMF relaxed objectives in other countries to meet unforeseen expenses. But so far, you are not willing to allow additional space.
The sources said it arose during these discussions that there is a minimum impact of RS500 billion of floods on income and expenses.
They said the IMF was ready to allow these adjustments and compensate for the impact on the main balance by reducing the public sector development program (PSDP) and using the budget contingency group.
The sources said that the objective of the FBR could be reviewed down at RS170 billion to RS13.96 billion. The IMF was also ready to reduce income without taxes from the Objective of the Federal Government Agricultural Income Tax and Punjab, they added. The impact of income without taxes mainly on the captive tax and the provincial income is RS140 billion, the sources said.
The sources said that the IMF has also evaluated that provincial expenses can also exceed approximately RS150 billion due to the cost related to floods.
As an alternative, the IMF has proposed that the federal government should reduce the PSDP by RS300 billion and another 150 billion rupees to be taken from the contingency group for such emergencies. This will have zero impact on the target of general general surplus.
The sources said that the Pakistani authorities were of the opinion that Pakistan should receive an additional fiscal space instead of allowing the budget adjustments. The IMF was reluctant to provide additional space at this stage, they added.
There is a strong vision that the IMF must allow additional space and reduce the objective of surplus of the primary budget by approximately RS500 billion or 0.4% of GDP.
For this fiscal year, the IMF has established the objective of the main budget surplus in RS3.1 billion or 2.4% of GDP and the target of cash surplus for the four provinces at RS1,464 billion or 1.1% of GDP. But the main balance is linked to the ability of the provinces to generate cash surpluses and the FBO’s ability to meet the objective of RS14.13 billion.
There were apprehensions that the Punjab government, which suffered important losses, may not be able to fulfill its cash surplus objective.
However, Punjab Minister of Information, Miss Azma Bukhari, said the provincial government was still committed to implementing its share of the promise provided that the FBR reached its goal.
“Punjab is committed to the estimated provincial participation of RS740 billion, (which is) depending on FBR fulfilling its objective of RS14.1 billion,” said Azma Bukhari while answering a question by the express trustee.
To another question, Miss Azma said that Punjab did not inform the IMF that she will not deliver the target of cash surplus of RS740 billion.
According to the IMF program, the Cash surplus of RS740 billion Punjab is very critical for the federal government’s ability to comply with the condition of showing primary budget surpluses. Azma said Punjab expects the FBR to reach its objective of RS14.1 billion and constitute its deficit so far.
There is almost no possibility that the FBR reaches its annual objective, such as the previous fiscal year. Even if there is an agreement on the downward review of the FBO target at RS167 billion, the new Objective of RS13.96 billion will not be achieved.
The FBR has already lost its first quarter on a wide margin of RS198 billion despite assuming drastic legal powers.
The FBR fault costs the provincial government a lot, which are then forced to reduce their planned expenses. In the last fiscal year, the Government had to increase oil collection rates to compensate for the impact of losing the objective of FBR on the general objective of the primary budget surplus.
In the last fiscal year, the Punjab government had to receive a blow of almost RS500 billion due to the FBR.
The FMI-FBR meeting on the income collection of this fiscal year remained below the government’s expectations after the FBR could not satisfy the IMF that it had a credible plan to achieve the annual objective of RS14.13 billion rupees.
For a question, Punjab information minister said that so far the flood damage evaluation survey is ongoing and that Punjab will have a better visibility of the expenses related to the flood once this survey is completed.
There is the possibility that the Punjab provincial government has to make adjustments in its current and development budgets to create space to spend on the rehabilitation of people while remains within the general objectives of the IMF umbrella.
The sources said that macroeconomic objectives, mainly inflation, the economic growth rate and current account deficits were still open for IMF decisions.
The government was launching an economic growth objective from 3.5% to 3.9% after the situation, while the IMF evaluation was that GDP growth may not increase by more than 3% in this fiscal year. The inflation objective is also open for discussions.
The Ministry of Finance launched a projection of current account deficit of $ 500 million after the flood, but the IMF cannot agree due to higher imports than the anticipated goods and a reduction in exports.
