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Deadlock persists between govt, IMF over Rs 900billion fiscal gap

by Suneela Zulfiqar
in Business, Finance
Reading Time: 2 mins read
Deadlock persists between govt, IMF over Rs 900billion fiscal gap
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The International Monetary Fund (IMF) has calculated a greater fiscal imbalance of around Rs900 billion, equivalent to 1% of the gross domestic product, amid the ongoing impasse over the budget gap. It is a significant obstacle to reaching a staff-level agreement.

The Pakistani government has disputed this enormous fiscal gap in achieving the primary deficit, and it has asked the IMF to incorporate a reduction flow under the revised Circular Debt Management Plan (CDMP) and reduce the amount of additional subsidy that is needed from Rs687 billion to Rs605 billion. As a result, the budget imbalance was between Rs400 and Rs450 billion.

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Officials have completely ruled out any possibility of IMF condition about the signing of Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan for reviving the Fund program and said that no such discussions took place with the review mission.

During the technical level discussions, there are still disagreements on determining the precise budget deficit between Pakistan and the visiting IMF review mission. The new taxation measures will be set once it has been agreed upon with the IMF and will be revealed in the future mini-budget. The technical level talks will continue on Monday due to the failure to reach an agreement on the budget gap’s amount, and policy-level conversations are anticipated to start on Tuesday, according to sources who spoke to a small group of media in private on Saturday.

They said that the IMF and the government had reached an in-principle agreement for the government to discontinue electricity and gas tariff subsidies for the export-oriented industry since the lender found such a distribution to be wholly unacceptable. The official stated that the exporters’ plan will be revamped and undergo significant adjustments. The Kissan Package was approved by the IMF, although they insisted on a power subsidy, 60,000 tube-well subsidies for Balochistan, and a subsidy for AJK.

The Pakistani government acknowledged that the power industry has so far proven to be a significant barrier to achieving smooth sailing. Despite the circular debt for the gas industry continues to be a challenge, progress was eventually made on this matter. The expenditures overrun will breach the overall budget deficit target of 4.9% of GDP, which is likely to touch 6.5 to 7% for the current fiscal year.

The IMF will request more revenue measures after the fiscal imbalance has been determined by both parties. The government was fighting tooth and nail against the IMF’s request to raise the GST rate by 1% from 17 to 18% or apply 17% GST on POL items.

The government is prepared to increase the Federal Excise Duty (FED) rate on cigarettes and sugary beverages from 13 to 17%, and increase withholding tax rates on property transactions, international air travel, and other things. It is also prepared to levy a flood tax on wealthy segments and imports.

The IMF assessed that the FBR would face a shortfall of Rs130 billion in achieving the target of Rs7,470 billion.

Tags: Circular Debt Management PlanFiscal GapGDPInternational Monetary Fundlatest
Suneela Zulfiqar

Suneela Zulfiqar

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