IMF staff mission has arrived for second review of performance of Pakistan under the bail-out package of $6 billion. The mission will be here for 11 days. Bail-out package was signed in the month of July last year followed by a shortfall in revenue in the first 7 months of the current fiscal year.
Pakistan has received $ 1.44 billion up till now
Another disbursement amounting $450 million is expected in March contingent upon the successful completion of review of modified 39 month programme launched in last November. Government expects that the amount will be used for building market confidence and maintaining foreign exchange reserves. So far Pakistan has secured an amount of $1.44 billion; out of which $991 million were received in July & first installment amounting $452 million in December 2019.
Net inflows expected to be received by Pakistan is $1.65 billion out of total $6 billion until 2023 since repayment amounting $4.36 billion will be made to IMF in the same period.
At this time the country has suffered a revenue shortfall amounting about $385 billion in the first 7 months of the current fiscal year out of the total targeted revenue of Rs. 2.79 trillion.
The government has set a target of Rs. 5.503 trillion under the federal budget 2019-2020 for FBR (Federal Board of Revenue) based on a growth rate of 43% in revenues. Actual growth rate of revenue collection in the first 7 months on the other hand has been 16.8% only. This has apparently resulted apparently because of 14% inflation rate and 3% economic growth that the government claims.
The fund mission will be holding meetings with the members of cabinet including Dr Abdul Hafeez Shaikh, Omar Ayub Khan, Asad Umar, Hammad Azhar and Mohammad mian Soomro as well as the top officials from SBP and economic ministries. Discussions will be rotating around challenges related to and progress of circular debt reduction, collection of revenue. Privatization program and other reforms.
FBR has categorically refused to impose additional taxes to meet the targets
At this stage, the key challenge that the government is facing is the shortage of available space in the economy for boosting revenue collection. FBR has rejected the idea of imposing additional taxes saying that it would be counter productive. Two sides will be discussing on identifying the measures for ensuring fiscal consolidation without cutting the development. Budget proposal for tax year 2021 due in June 2020 is also expected to be discussed.
The government has also approved in the fiscal policy statement of 2019-20 that decrease in revenue collection and sharp rise of the current expenditures have led to the distortion in the fiscal indicators in the fiscal year 2018-2019. The statement says that federal level revenue collection has been lower than 2% of the GDP and 3/4th of the shortfall has been due to one off factors and the government expects that these factors will not be carried forward to the FY 2019-2020.
The factors included delays in renewal of telecom licenses & the sale of envisage state assets, lower tax amnesty proceeds than the expected one which contributed only 1% of GDP. On the other hand transfer of profits of SBP created an addition 0.5% of the GDP. Finance ministry says that the SBP profits fell heavily in 2018-2019 as the bank has incurred heavy exchange rate losses on the external liabilities.
Government said, The “current expenditure grew by around 21pc during FY2018-19 mainly due to higher interest payments [up by 39pc] on account of rise in domestic interest rates”. It also added that the interest services target was initially budgeted to be only 6% over 2017-2018. However the interest payment has been 29% higher than expected.
The finance ministry has reported that the total government revenue has been Rs. 4.9 trillion during 2018-2019 as compared to Rs. 5.288 trillion during the year 2017 – 2018 registering a decline of 6%. This proved to be a rare fiscal year in the recent history that the revenue collection was lower than the previous year i.e. Rs. 3.829 trillion which was about 14% lower than the target of Rs. 4.433 trillion.