With fiscal deficit estimated at around 9 per cent of gross domestic product (GDP) next year, the govern-ment is struggling to put the IMF programme back on track as the Fund expects a tight freeze on all non-debt servicing expenditures through the next federal budget. Sources told Dawn that the IMF had sought to contain pri-mazy deficit to -0.4pc of GDP while authorities were still fight-ing for its target to be set at -1.2pc of GDP. How the two sides bridge the gap would become clear after the economic team concludes its presentation series to the prime minister. The sources said that hectic.
engagements were currently in full swing among various arms of the federal government and the International Monetary Fund (IMF) to revive through the budget $6 billion Extended Fund Facility (EFF) that has been subject to formal comple-tion of second quarterly review since February this year. The Fund had disbursed about $1.44bn to Pakistan under the EFF by December last year, fol-lowed by another $1.4bn dis-bursement under Rapid Financing Instrument (RFI) for emergency support to help the country fight the impact of Covid-19. The authorities expect to con-vince the IMF team for a pri-mary deficit target somewhere between 0.4pc and 1.2pc —maybe 0.6-0.7pc, an official said. He said the fiscal deficit for the next financial year was being targeted at 9pc of GDP with a 0.5pc variation for possible Covid-19-related needs com-pared to about 9.5pc deficit expected during the current financial year.
The original budget deficit target for the cur-rent year was 7.2pc of GDP. As part of the dialogue, the IMF expects Pakistan to freeze, if not reduce, the expenditure for salaries and pensions, running of the civil government, security, subsidies and development. The argument is that the country was seeking debt relaxation from developed countries which had in fact cut their own salary bills by 1-2pc and expected the bene-ficiary nations to reciprocate by belt tightening.
The authorities are reported to have shown to the IMF’s resi-dent mission in Islamabad the protesting government employ-ees outside the federal govern-ment secretariat in recent months. Such protests could expand, they have argued, and taken the stand that the salaries had actually been slashed over the past two years when seen in the context of double digit infla-tion and higher income tax com-pared to single digit hikes on part of the salaries. On top of that, the salaries to top level civil and military
bureaucracy had been kept fro-zen in the current year’s budget and those of elected representa-tives actually reduced.
The finance ministry has calculated the impact of 1pc increase in sal-aries at about RslObn and even a 7-8pc hike could have a signifi-cant additional burden of Rs70- 80bn. Almost half of this expend-iture works out on account of grade 17 to 22 officers. The pension bill was also emerging as the major fiscal challenge. The estimate for next year’s salary bill was estimated at about Rs485bn compared to about Rs470bn for pensions. The subsidy on fertiliser estimated at Rs37bn this year is also under tight scrutiny and criticism. Also, the centre would urge the provinces to share 50pc cost of the special federal projects in the provinces. Similar arguments for freeze have also been advanced by the IMF for continuously rising security expenditure. While the normal annual defence expendi-ture has a very limited elasticity, according to Pakistani authori-
ties, parts of security-related development plans could be hit. Likewise, the government was considering the IMF proposals to restrict energy sector subsi-dies — mostly in the power sec-tor — to targeted distribution through Benazir Income Support Programme on the basis of its elaborate surveys and data instead of through tariff. As such, the size of subsidies is being curtailed to less than Rs185bn for the next year against about Rs291bn this year.
A final shape would crystallise over the next couple of days. The sources said the govern-ment had also completed a detailed exercise of expendi-ture cutting in more than 114 key heads of the federal gov-ernment and have found no more than Rs30-35bn saving as these areas have been subject to the austerity drive since the days of former finance minis-ter Ishaq Dar. A proposal has also come under consideration to abolish the transport monetisation scheme introduced during Dr Shaikh’s last stint as finance minister which has been subject to misuse by top bureaucrats who not only enjoy more than Rs100,000 per month of trans-port allowance and at the same time use official cars or those secured from subordinate offices. However, He Shaikh is reported to have been warned by top bureaucrats that an end to transportation monetisation would mean procurement of new vehicles at public expense. However, some major savings are expected on account of pro-posals put forth by Dr Ishrat Husain, the prime minister’s adviser on austerity and institu-tional reforms. These sources said Dr Husain and Dr Shaikh have convinced the prime minis-ter to abolish all those posts which have been vacant for a year and more in the federal gov-ernment and its allied agencies and departments. The government is also under pressure to abolish about nine federal ministries the subjects of which have been devolved to the provinces and their skeleton.
units could be put under the ministry of inter-provincial coor-dination. The authorities expect to line up formal talks with the IMF mission for revival of EFF pro-gramme in the early days of next financial year and after the completion of budget approval process this month. While dis-bursing the $1.4bn emergency funds to Pakistan early Apr., the IMF had said that RFI was the appropriate instrument to support Pakistan at this junc-ture as the severity of the shock and the uncertainty about the outlook make it difficult to recalibrate the existing EFF to ensure that it remains on track to meet its objectives. Pakistan had made renewed commitment to reforms in the existing EFF — in particular those related to fiscal consolida-tion strategy, energy sector, gov-ernance, and remaining AMU CFT deficiencies considered cru-cial to entrench resilience, boost growth potential, and deliver broad-based benefits for all Pakistanis.
