ISLAMABAD: The federal government has urged the provinces to announce surplus budgets ahead of its crucial talks with the International Monetary Fund for preparing by May 17 a consolidated federal budget with less than five per cent deficit.
A senior government official said the economic team would hold a final round of internal consultations on Tuesday about the outlines of next year's fiscal and monetary policies, setting the macroeconomic policy direction before going for a formal dialogue with the IMF in UAE on May 11 and 17.
“The budget will be finalised by May 17 in Dubai in consultation with the IMF,” he said.
The broad contours of the budget are almost ready based on suggestions made by political parties that will be shared with the lending agency with confidence about next year's fiscal and monetary framework.
Deficit provincial budgets have been one of the major reasons behind the government's failure to contain fiscal deficit within the target of 4.7 per cent agreed with the IMF for the current year, later revised to 5.5 per cent.
“There are indications to suggest that the fiscal deficit will be higher than six per cent of GDP if grants are also accounted for,” the official said.
This time, the centre wants the provincial governments to prepare written statements to be able to ascertain which provincial government will offer how much of surplus cash to ensure that the consolidated deficit does not go beyond five per cent of GDP and it does not keep fluctuating throughout the year as during the current year, attracting criticism from lenders and political leaders abroad.
Officials said that persuasions by the federal government had finally led the provincial governments to come up with cash surpluses during the current year although they had announced budgets with more than Rs80 billion of combined deficit.By the end of April, three provinces are reported to have come up with surplus cash while Punjab and Azad Kashmir are in minor deficits.
When the government team opens talks with the IMF mission, it will have some 'honoured commitments to start with'.
The officials said the government would present to the mission an overall tax rationalisation plan under which regulatory duties on almost all imports would be done away with.
At the same time, the government plans to reduce customs duties on a range of imports, mostly machinery and equipment to promote investment.
The government has already finalised two budget plans and discussed with the National Assembly's standing committee on finance and separately with major political parties.Under its plan A, the government envisages tax revenue target of Rs1.952 trillion with Rs72 billion additional income from reformed general sales tax while plan B envisages Rs1.968 trillion revenue with Rs90 billion coming from withdrawal of zero ratings and tax exemptions.
The government expects additional revenue of about Rs254 billion because of increase in the size of economy and higher inflation.
The economic advisory council, headed by former adviser on finance Hafeez A Pasha, has advised the government not to expect more than Rs1.880 trillion to avoid facing shortfalls and higher deficits at the end of the year.