ISLAMABAD: The International Monetary Fund (IMF) wants Pakistan cut its overall development budget by 27 per cent to keep fiscal deficit within limits and make up for revenue shortfall during the current fiscal year.

Based on discussions with the authorities led by Finance Minister Ishaq Dar, the IMF expected the government to limit the development programme by 26.56pc or at Rs1.111 trillion against Rs1.513tr approved by parliament and four provincial assemblies in June 2015.

For achieving this target, the Fund has estimated that the federal government will need to limit Public Sector Development Programme (PSDP) expenditure at Rs611bn, down 13pc, against Rs700bn authorised by the parliament.

On the other hand, the cumulative annual development plans of the four provinces would be reduced to Rs500bn, down 38.5pc against Rs813bn announced by the four provincial assemblies.

As part of the IMF programme, the government has set a limit on the country’s overall fiscal deficit at 4.3pc of GDP including 0.3pc expenses for military operations against terrorists in the tribal region and resettlement of temporary displaced persons (TDPs).

To facilitate completion of ninth quarterly review and secure disbursement of $500m tranche in December 2015, the government had confirmed to the IMF last month that it had missed budget deficit target in the first quarter of 2015-16 but promised to “remain committed to sustained fiscal consolidation”.

To place the debt-to-GDP ratio on a firm downward trajectory, bolster macroeconomic stability, and set the stage for sustainable and inclusive growth, the government assured the IMF to remain determined to lowering the budget deficit excluding grants to 4.3pc of GDP this fiscal year and to 3.5pc by the end of the IMF programme in 2016-17, mainly through revenue mobilisation and expenditure rationalisation across all layers of government.

This was aimed at creating the much-desired fiscal space for priority spending on infrastructure, education, healthcare, and targeted social assistance to improve living standards and to protect the most vulnerable segments of society.

Towards that end, the government reported to the IMF that provincial governments had given in writing to contain their expenditures and continue to manage budgetary spending prudently and strive to achieve their contribution to fiscal consolidation.

“To assure achievement of our fiscal targets in 2015-16 and beyond, the provincial finance secretaries have agreed in writing to increase budget surpluses consistent with the programme,” the government wrote.

To this end, total provincial spending will be maintained at 6.5pc of GDP in 2015-16, with total provincial-own-tax and non-tax revenues standing at 1.1pc of GDP.

The finance ministry said the centre was intensifying interaction with provincial authorities at a higher level to arrive at a mechanism to strengthen the provinces’ fiscal commitment for 2015-16. It said it was also holding quarterly meetings among the federal and provincial finance secretaries to review fiscal performance and coordinate spending priorities to correct any slippages in a timely manner.

Moreover, the government planned to again prepare contingency measures as needed and reduce expenditure allocations in the first nine months of the year compared to the budget to create a fiscal buffer against any deviation away from the IMF programme target.

The government also promised that additional budgetary spending as result of the reclassification of some non-plan loans (0.1pc of GDP) will be made through re-allocation of existing capital expenditure plans, including at the provincial level. The additional budgetary spending related to the new agricultural spending package (0.1pc of GDP) will be absorbed within recurrent spending.

The government also committed to continue working towards reducing energy subsidies (including amounts for arrears clearance) to 0.4pc of GDP in 2015-16, from 0.8pc in 2014-15. To protect against a potential negative outcome of legal challenges to electricity surcharges, the government will take mitigating measures as necessary.

Published in Dawn, January 27th, 2016