ISLAMABAD: With fiscal deficit rising, a review mission of the International Monetary Fund (IMF) will be visiting here next week to assess the country’s financial requirements and discuss with authorities the need for a mid-year budget restructuring.
Sources told Dawn on Wednesday that IMF authorities had already indicated their willingness to raise the fiscal deficit target by 0.7 per cent from the originally budgeted four per cent for the current year.
The sources said an exchange of data with the IMF in Washington in August suggested that the fiscal deficit might go up beyond six per cent because of a higher than targeted expenditure projections by the provinces and lower revenue collections at the federal level.
The two factors put together required the government to create a fiscal cushion of about Rs170 billion through cut in development programme, higher revenue recoveries and freeze on current expenditures both at the federal and provincial level.
In the aftermath of devastation caused by floods, the financial requirements have gone up tremendously and so has the need for additional international aid flows, increased revenue targets and more drastic cuts on development and current expenditures, including restructuring of public sector entities to limit subsidy injections.
These additional financial requirements have necessitated a massive restructuring of federal budget because most of the fiscal targets will have to be changed to limit fiscal deficit to a reasonable level.
“On business as usual basis, the deficit could go beyond 7.5 per cent,” said an official.
At the same time, the key macroeconomic targets — including growth and inflation — will also have to be changed along with a budgetary overhaul to be finalised by next month for introduction with effect from Jan 1, next year.
The sources said the government would need a comprehensive and aggressive engagement with the international community not only to be generous in supporting Pakistan economy but also influence the IMF for a favourable support.
In this context, preliminary Damage Need Assessment (DNA) reports, prepared by the World Bank and Asian Development Bank, will be shared with the Friends of Democratic Pakistan (FoDP) in Brussels for assistance. Foreign Minister Shah Mehmood Qureshi and Minister of State for Economic Affairs Hina Rabbani Khar will represent the country at the FoDP meeting.
The main concern for the FoDP has, however, been the issues of transparency and accountability because there were few buyers for the monitoring mechanism put in place by the government through the National Disaster Oversight Commission (NDOC).
The effort at FoDP will be followed up at a Pakistan-US strategic dialogue in Washington next month, where Army Chief General Ashfaq Parvez Kayani will lead the Pakistani delegation. It will also include Finance Minister Hafeez Shaikh and some other ministers.
The IMF mission, the sources said, would review Pakistan’s progress towards introduction of tax and energy sector reforms as earlier committed with the fund because the authorities would, by then, hand over the Reformed General Sales Tax Bill to the parliamentary committees.
The fund had stopped disbursement of about $4 billion assistance to Pakistan in July this year because of non-observance of performance criteria, mainly on account of breach of fiscal deficit target, delay in taxation and energy sector reforms.
The mission will submit its findings and revised budgetary framework to the IMF authorities to decide whether to hold fifth review of the $11.3 billion standby arrangement that should culminate by end of November. The sources said the foreign and finance ministers had already informed the international community about the economic challenges posed by floods and security situation.