The annual national budget-making exercise has become a major headache for the government as it grapples with the tough conditions imposed by International Monetary Fund (IMF) and other donors, according to sources in the Finance Ministry.
The sources further said that for the first time, a schedule of release of loans and setting the federal budget parameters have coincided.
Pakistan planned a 12-month schedule for acquiring foreign currency inflows through commercial and soft loans from multiple financial sources for a deficit-reducing mechanism laid out by the IMF technical team. It would have to be operational before the announcement of the budget.
This plan sets some tough targets as per sources of the Finance Ministry. The conditions include total national subsidy to be slashed from Rs. 780 billion to Rs. 491 billion, federal deficit to be reduced from Rs. 3,760 billion to Rs. 2,770 billion, prices of power, gas, and petroleum products to be increased, petroleum levy to be increased by Rs. 8 per liter before June 2022, provincial development plans to be frozen at Rs. 1,800 billion, Federal Public Sector Development Programme (PSDP) to be reduced from Rs. 627 billion to Rs. 554 billion, the Federal Board of Revenue (FBR) tax target to be increased from Rs. 6.1 trillion to Rs. 7.8 trillion.
The tasks of reducing the fiscal deficit and increasing revenues, both requiring the launch of a new mechanism involving federal as well as provincial political and technical support have also given a major headache to the government. This support seems hard to come by, as manifested in opposition to almost all the important actions initiated under commitments to the IMF and the World Bank.
Further, some of these commitments command that the final draft of the budget 2022, to be approved by IMF before the announcement, does away with the Rs. 150 billion corporate income tax exemption available to big players in the economy.
It demands that the budget should retain only those exemptions on goods and services that are of sensitive nature and could bring another wave of inflation. It mandates diverting subsidy allowed to high-slab billing on gas and electricity to the consumers receiving bills under Rs. 1000 a month. Petroleum levy has to be increased under the new formula by Rs. 8 per liter by June 2022 so that the cost of petroleum purchase does not shoot up on the federal deficits index beyond a limit.
It further demands that at least 17 of the public sector institutions listed as the biggest loss-makers are either disinvested, deleted from the operational list, or sold for whatever amount they fetch from the market. The money (up to Rs. 280 billion) thus saved and acquired should be used for curtailing the federal deficit.
Another tough task is selling the new property valuation list to the provincial capitals whose opposition has already put more than $3 billion in loans in danger. These loans, committed by major donors, were tied to the new valuation in all the provincial districts. The harmonization of the Sales Tax regime for which the World Bank has already laid down a mechanism and a timeline that coincides with the upcoming budget is another serious issue.
The IMF has also conditioned the release of remaining tranches from its package to a new action by Islamabad in the forthcoming budget. It entails that all PSDP projects would be allowed funds after the State Bank of Pakistan agree to the money release on fulfillment of a condition. The condition makes it mandatory that a project-inspection mechanism is listed and a plausible timeline is tied up to the bank loans arranged for each project.
Source: Pro Pakistani