With IMF consent, govt sets higher economic targets

Published May 28, 2021
A government team on Thursday told a parliamentary panel that the GDP growth rate for next year was being targeted at five per cent. — AFP/File
A government team on Thursday told a parliamentary panel that the GDP growth rate for next year was being targeted at five per cent. — AFP/File

• NA body told next year’s GDP growth rate targeted at 5pc
• PSDP to be increased to Rs900bn
• Lawmakers question projections

ISLAMABAD: With an apparent understanding with the International Monetary Fund (IMF) for a controlled expansionary stance, the government is setting higher benchmarks for rates of inflation, economic growth and fiscal and primary deficits for the next fiscal year following changes in the economic team and encouraging macroeconomic indicators this year.

A government team on Thursday told a parliamentary panel that the GDP growth rate for next year was being targeted at five per cent instead of 4.2pc approved by the federal cabinet on April 13, while inflation was now anticipated to increase by 8.2pc instead of 8pc. Likewise, the overall budget deficit limit has now been pitched at 6.3pc of GDP instead of earlier 6pc, while primary deficit would be around 0.6pc instead of 0.1pc.

A revised medium-term Budget Strategy Paper (BSP) presented in the National Assembly’s Standing Committee on Finance and Revenue by Dr Waqar Masood-led team of the Ministry of Finance and Federal Board of Revenue stated that the next year’s Public Sector Development Programme had been increased to Rs900 billion from Rs800bn last year.

The committee members from both treasury and opposition benches questioned the economic projections, saying unrealistic numbers and similar arguments and objectives had been presented to different governments. This was also evident from a presentation that showed the budget estimate of inflation last year was 6.5pc which increased to 9pc, while budget deficit was estimated at 7pc which turned out to be 7.2pc last year.

Dr Waqar Masood, Special Assistant to the Prime Minister (SAPM) on Finance and Revenue, said that since the April 13 approval of the BSP by the cabinet, certain changes had taken place, including the encouraging GDP growth rate of 3.94pc, which suggested that the growth process had begun and it had to be made sustainable. He said that while remaining within the IMF programme that required austerity, the process of expansion was also a major consideration of the government.

He said the government was still working with the IMF as part of the ongoing budget exercise. The Fund’s managing director had been requested for some relaxation on fiscal expansion in view of the third wave of Covid-19 to take measures that help contain food inflation and energy prices while maintaining the overall fiscal discipline.

The SAPM said the IMF had generally agreed in principle to cooperate provided the overall programme objectives were adhered to. “Therefore, while the policy of austerity would continue, its speed would not be the same as before because we have already made a fiscal adjustment of about 2.4pc and need a respite in this speed. The next year’s fiscal adjustment would be about 0.4pc,” he added.

As such the focus of the next year budget would be on revenue mobilisation and austerity so that expenditure remained minimal as “our people have sacrificed a lot over the last two years and we want to give them some relief”, he said, adding that discussions on the issue were ongoing and a final shape would be reflected in the budget. The tax measures would also be such that do not impact the general price.

The BSP also projected next year’s public debt-to-GDP ratio at 81.4pc owing to the revised size of GDP at Rs54,341bn as determined by the National Accounts Committee recently when compared to earlier estimates of 84.3pc of GDP on the basis of Rs52,462bn size.

The current account deficit for next year was now anticipated at $4.8bn against earlier estimate of $4.7bn because of expected higher import requirements.

Revenue mobilisation through administrative measures and use of technology, expeditious disposal of tax refunds, broadening of tax base and increase in tax net, increase in the ratio of direct taxes, reduction in tax expenditures, simplification of tax procedures and lower tax litigations would be the key objectives of the revenue side.

The legislators contended that while all such objectives were proposed by the bureaucracy every year irrespective of any government, the fact remained that nothing had changed and indirect taxes had in fact increased from 61pc last year to 63pc this year.

On the spending side, sustainable and inclusive growth, protecting the poor and the vulnerable, containing inflation through a freeze on administered prices of energy and increased development spending for jobs creation and minimal increase in current expenditure would be key objections. This would be done though housing and other programmes and generate 1.2-1.9 million additional jobs next year.

The NA committee was also informed that about Rs350bn worth of unspent funds out of Rs1.2 trillion Covid-19 fund was still outstanding and about Rs200bn of which would be spent next year.

Finance Secretary Kamran Afzal said power sector subsidies for clearing circular debt would be more targeted and increased to about Rs500bn as per actual estimates of the Power Division.

The circular debt worth Rs400bn would be scaled down through payment of dues to independent power producers and about Rs400bn through non-cash adjustments between the government and its entities, while salaries, pensions and allowances of the employees would also be increased in the budget, although its final shape was still under debate.

Because of a change in stance on revenue side by the new finance minister, the IMF’s revenue target of Rs5.96tr would be reduced so that additional taxes could not impact the prices, although every effort would be in place to get closer to this number, Dr Waqar Masood said.

He added that about 14.8pc increase in revenue would accrue automatically because of nominal GDP growth, including 8.2pc growth and 5pc GDP growth, while another 5.3pc increase would come through administrative means and use of technology and cross data matching.

The gross revenue for next year has thus been projected at Rs7.909tr against the earlier estimate of Rs7.989tr of which Rs3.422tr would be transferred to the provinces, instead of Rs3.527tr. The net federal revenue is, nevertheless, projected to be slightly higher at Rs4.487tr next year under the revised target as against Rs4.462tr earlier.

The total current expenditure for next year is now projected at Rs7.558tr instead of earlier estimate of Rs7.256tr, even though non-employee-related expenditure would not be allowed to increase. With Rs900bn PSDP, the total expenditure would stand at Rs8.458tr instead of earlier estimate of Rs8.056tr. As a result, the federal fiscal deficit would reach Rs3.971tr or 7.3pc of GDP. With provincial cash surplus of over Rs500bn, the overall fiscal deficit would be contained at 6.3pc of GDP.

The major revenue effort would be based on integration of retail business through points of sales and trade through use of technology, while power tariff increase had been postponed.

Dr Masood said the capacity payment after addition of two nuclear power plants and other CPEC-related projects was the biggest challenge going forward and efforts were under way to address it.

Published in Dawn, May 28th, 2021

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