ISLAMABAD – The government and the International Monetary Fund (IMF) are set to hold talks on March 1 for the revival of the suspended $11.3 billion standby arrangement facility. An official source at the Ministry of Finance said the IMF team would be briefed on the current economic situation, progress on the talks with the political parties and steps taken to control the fiscal deficit.
He said the IMF team would remain in the country for the next week and would be reviewing performance of various sectors, especially revenue and power. With the suspension of the IMF programme, the government was faced with a dilemma as all bilateral and multilateral donors have linked the release of their budgetary support assistance with the issuance of a letter of comfort by the IMF.
The government would try to convince the IMF team to release at least one tranche of $1.7 billion during the current fiscal year. This would pave the way for the inflow of assistance from other development partners, the source added. He said the government was hopeful of a positive response from the IMF as significant improvements were made that had contained the fiscal deficit at 2.8 percent of the GDP during the first six months of the current fiscal year against the current fiscal’s target of 4.7 percent of the GDP.
The rising fiscal deficit is the most critical concern of the IMF as its monetisation was not only fuelling inflation but also hampering growth by crowding out the private sector. The IMF has attributed inflation as another form of taxing the poor, instead of the taxing the rich. Since exports and remittances were on the rise, the country was in a stable position.
The revenue generation was estimated to reach Rs 1,630 billion during the current fiscal year against the target of Rs 1,667 billion. However, if the flood tax was not imposed, the revenue collection would reach Rs 1,605 billion. In both scenarios, the government would be able to maintain the fiscal deficit within the agreed limit, he said, adding that that would pave the way for the release of at least one tranche from the IMF to meet the target.
The government would brief the IMF on the new fiscal framework proposing 15 percent flood surcharge and increase in the special excise duty (SED) by 1.5 percent and a cut in expenditure to contain the fiscal deficit that would be presented to the IMF mission during the talks, he said adding that the imposition of flood surcharge and SED would help generate Rs 36 billion in the remaining period of current fiscal year.
About the expenditure cuts, the source said the government estimates to save Rs 20 billion from its current expenditure along with significant cut from the Benazir Income Support Programme (BISP) and allocation for the internally displaced persons (IDPs). The proposed measures also envisage Rs 5 billion from broadening of tax base by taking enforcement measures and another Rs 5 billion through recovery of arrears.
The proposed revenue and administrative measures are estimated to give additional revenue measures of Rs 46 billion provided these are implemented from March, he said. The government has asked the province to give around Rs 100 surplus budget for the current fiscal year from the additional Rs 300 billion transferred to them under the new National Finance Commission Award to contain the fiscal deficit.
The development expenditure has already been reduced by Rs 100 billion.
