According to an assessment by the International Monetary Fund, Pakistan’s government may have to deal with a shortfall of Rs300-350 billion due to the Petroleum Development Levy (PDL), following a 22% decline in the consumption of POL products in the nation .
Islamabad will need to request at least two waivers for the end of September 2022, performance conditions (PCs), and structural benchmark due to its inability to pass a law on State Owned Enterprises (SOEs) from the parliament and reach the Net International Reserves (NIR) target set for the September 30 deadline.
Without a set date for holding policy-level discussions to conclude the ongoing 9th Review and release the $1 billion tranche under the Extended Fund Facility, Pakistan and the IMF continued technical-level virtual discussions.
The IMF side expressed its estimation that the government would experience a shortfall of Rs0.35 trillion as a result of decreased consumption of POL products in the current fiscal year, out of the total federal tax and non-tax revenues of Rs9.4 trillion. The FBR’s existing target of Rs7.4 trillion is unaffected, despite an anticipated PDL shortfall in non-tax revenue for the current fiscal year.
The government expected to collect Rs0.855 trillion from PDL. However, the revenue for the first quarter was only Rs0.47 trillion.
The maximum tax on MS gasoline and HOBC has now been increased by the government to Rs 50 per liter. According to the updated estimate, the government could earn up to Rs0.5 trillion.
In the wake of severe flooding, the government will need to modify the macroeconomic and budgetary framework for the current fiscal year. The floods caused a revision to the GDP growth of up to 2% and an average increase in inflation of 23 to 25%.
All other targets, such as the tax-to-GDP ratio, the fiscal deficit, the current account deficit, and others, will be modified now that nominal growth is hovering around 25%.
According to him, the IMF would then provide an adjuster up to the number of expenses incurred in order to reach the anticipated budget deficit target for the current fiscal year.
When contacted, a close confidant of the Minister for Finance told this scribe the IMF had sought details of flood-related expenditures going to be incurred in the current fiscal year. “We are working out details of expenditures going to be incurred on floods in the current fiscal year”, said the official.
Additionally, the Public Sector Development Programme (PSDP) will be reduced, and some of the money will be reallocated to flood-related expenses. In the current fiscal year, it is predicted that $300 to 350 billion will be used for flood-related expenses.
According to the official, the government has not yet exceeded the main surplus target. Regarding PDL’s budget shortfall, he stated that the government would work to fill a portion of it through higher SBP profits.
Because it couldn’t be completed by the planned deadline of September 30, the government will need to request a waiver of the SOEs statute.
While the planned privatization of SOEs could not take place due to heightened uncertainty, Pakistani authorities committed to IMF they would continue improving governance, transparency, and efficiency while limiting their fiscal risks.
The process of strengthening the legal and regulatory frameworks of SOEs is at an advanced stage. Benefiting from the Fund, Pakistani authorities submitted a new SOE law to the parliament which was adopted by the National Assembly in July 2022. And now it is awaiting Senate approval. However, it could not be done till September 30, 2022 deadline and it was missed out.
