KARACHI – The government and the International Monetary Fund have agreed on a budget deficit of 5.3 percent of the gross domestic product (GDP) in the fiscal year 2010/11 (July-June), and are forecasting a growth of around 2.75 percent, sources said on Monday. This is more than a revised budget deficit of 4.7 percent of GDP made following the devastating 2010 floods that caused around $10 billion in damages. “We agreed to a target budget deficit at 5.3 percent of GDP, GDP growth around 2.75 percent and average inflation at 15 percent for year ending June 30,” said a source, who requested anonymity. An IMF team conducted a review of the economy for the possible release of the sixth tranche of an $11 billion loan programme agreed to in November 2008. Pakistan’s initial target for growth and inflation for 2010/11 was 4.5 percent and 9.5 percent, but that had to be revised following the devastation caused by the floods.
Finance Minster Hafiz Shaikh, however, said on March 5 that the country would aim to keep the budget deficit at 5 percent of GDP. The IMF and other donors have asked Pakistan to raise its tax-to-GDP ratio, only about 10 percent and one of the world’s lowest, by implementing fiscal reforms including a reformed general sales tax. “Reformed GST is not off the table but is being worked on, we hope it gets implemented,” said a source. The IMF mission chief Adnan Mazarei on Friday said the IMF welcomed the government’s effort to restrain spending and new tax policy measures to mobilise additional revenue. If implemented promptly and consistently these measures would help put the budget on more stable footing, he added, although analysts said the IMF would still likely wait and see whether the new measures are implemented before it decides to release the sixth tranche.
