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IMF differs with Pakistan's fiscal projections
Publication Date : 04-10-2012
The International Monetary Fund (IMF) has differed with Pakistan’s major fiscal projections for the current fiscal year, including power sector subsidies, provincial expenditures and revenue targets, saying the fiscal deficit limit set at 4.7 per cent for the year was most likely to be missed by a wide margin.
Inside sources said that based on its own evaluation of fiscal and economic trends in the first quarter of the current year, the IMF estimated the fiscal deficit in excess of 6 per cent of GDP (gross domestic product).
This was the crux of a week-long consultation process between the two sides as part of post-programme monitoring of Pakistan’s fiscal position and its capacity to pay back international loans.
An official explained that even though these consultations would not have any direct bearing on Pakistan’s macroeconomic policies because Islamabad was currently not under the IMF programme but IMF’s evaluation report on the country’s economic performance could have indirect impact lending from other multilaterals and bilateral lenders who consider IMF’s evaluation very seriously in negotiating new loans.
These sources said the IMF questioned authorities ability to achieve revenue collection target of 2.381 trillion rupees (US$24.99 billion) and noted that Pakistan would at best reach 2.150 trillion rupees mark at the end of the fiscal year.
The authorities, however, informed a usual revenue growth would take Federal Board of Revenue’s taxes to 2.2 trillion rupees while another 200 billion rupees worth of additional measures would be introduced soon that would also include a couple of tax amnesty schemes.
The IMF mission, said these sources, however, did not take tax amnesty schemes in good taste and argued that long term revenue growth could not be achieved without withdrawing exemptions and bringing new areas into the tax net. The overarching view of the IMF mission was that whitening schemes in fact encouraged tax evasion in the long term, the source said.
Likewise, the IMF team believed that given the election sentiment running the public finance, it was unlikely to restrict provincial expenditures within a 1.118 trillion rupees limit and estimated provincial expenditures at around 1.2 trillion rupees.
On top of that, the IMF mission was very critical of the lack of power sector reforms resulting in continuous pressure on the federal budget. In this context, the authorities informed the mission that while the government had estimated about 120 billion rupees for power tariff differential subsidy in the budget, the target had been revised to 185 billion rupees.
Based on feedback from the World Bank, the IMF mission said the power sector subsidy could not be contained below 250 billion rupees and in fact this may go beyond 325 billion rupees. On these evaluations, the IMF estimated Pakistan’s fiscal deficit at 6.1 per cent of GDP, instead of 4.7 per cent budgeted by the government.
The IMF mission also noted that power sector reforms more importantly strengthening of national electric power regulatory authority, central power purchase agency and power companies of Wapda had shown negligible progress and hence the most critical challenge to federal budget remained unaddressed.
Among other grey areas identified by the IMF included a threat to exports, inflation, deficit financing through borrowing and overall balance of payment position going forward. As a result, both sides decided against a customary media interaction or public announcement at the end of the dialogue.
*US$1=95.25 Pakistani rupees