The Pakistani government is facing a “very tough” second quarter review by visiting International Monetary Fund (IMF) staff as the country’s fiscal deficit breached 2.3 percent of GDP in the first half of 2019-20 despite a tight control on the government’s expenditure.
According to a local news report, the financial deficit in the period from July to December 2019 was about Rs 995 billion (2.3% of GDP) — up from just 0.6% in the first quarter ending in September — owing to a massive revenue shortfall of about Rs 290 billion in the corresponding period.
This is despite the fact that the federal government was able to restrict its expenditure at Rs183bn in July-December. This worked out at about 42 percent of the annual target of about Rs440bn set in the budget.
“There was not a single supplementary grant allowed in the first six months on civil expenditure and austerity was religiously followed,” a senior official is said to have reported to the IMF.
During the same period of 2018-19, fiscal deficit had stood at 2.7 percent of GDP or about Rs1.03 trillion but then the annual fiscal deficit had gone to 8.9 percent against a budgeted estimate of 4.9 percent.
“In absolute terms, the deficit is almost there again,” he said, adding the gap is just Rs34bn. The fund had projected 3.2 percent deficit for the first half of the year.
Government officials say the energy sector’s performance too, was behind schedule, as the flow of circular debt had not been contained as committed.
The government had over performed on primary balance benchmark under the programme, but this has not impressed the IMF mission. They think this is “neither sustainable nor desirable” because most of it came from one-off rollovers from the previous fiscal year and has not been supported by revenue growth.
The government is struggling with the limited space in the economy to boost revenue collection after the Federal Board of Revenue (FBR) opposed additional taxation, calling it counterproductive.
A successful completion of the IMF review would ensure the disbursement of the next tranche of $450 million, which the government direly needs to build market confidence and maintain foreign exchange reserves.