The government has proposed to the International Monetary Fund (IMF) a budget deficit target of 4.8 percent of GDP, or Rs. 3.77 trillion, for the next fiscal year, which the global lender wants to be modified further through a combination of expenditure cuts and enhanced revenue mobilization.
Further talks with the IMF on the budget for the fiscal year 2022-23 will begin this week in order to close the deficit and reach an agreement by June.
However, the new coalition administration faces a twofold challenge: restoring Pakistan’s credibility in the eyes of international lenders after previous pledges were breached, while also gaining concessions from them.
According to the news agency, the government proposed a budget deficit target of Rs. 3.77 trillion, or 4.8 percent of GDP, for the next fiscal year at the unsuccessful Doha talks.
They noted that the primary deficit target for the next fiscal year has been suggested at 0.5 percent of GDP, or less than Rs400 billion, excluding interest payments.
The IMF, on the other hand, did not accept both figures, classifying the 4.8 percent budget deficit prediction as “low” in the absence of meaningful actions.
Instead of adopting a primary deficit target, it asked that Pakistan fulfill its pledge and create a primary budget surplus, they stated.
According to the sources, Pakistan informed the IMF that any budget based on reaching a primary budget balance would be impossible and would put the next fiscal year on the wrong footing.
The primary budget target, which can only be met in the current circumstances through a mix of development expenditure cuts and increased revenue collection, is the IMF’s main goal under the 2019 Extended Fund Facility.
However, the benefits obtained through increased revenue mobilization and reductions in development spending are offset by the central bank’s decision to raise the key policy rate to 13.75 percent.
According to Dr. Aisha Pasha, Minister of State for Finance and Revenue, there was a significant credibility crisis caused by the previous government’s failure to keep promises made to the IMF. Dr. Pasha described his success as “bringing the IMF back to the bargaining table and covering the significant ground.”
To read our blog on “Prior to policy-level talks with IMF, Miftah Ismail rules out the reduction of fuel and energy subsidies,” click here.
