Pakistan and the IMF have agreed to revise downward the macroeconomic and fiscal framework for the current fiscal year, under which the FBR’s annual tax collection target was slashed down from Rs12.97 trillion to Rs12.35 trillion.
Without changing the envisaged tax-to-GDP ratio target of 10.6 per cent, the FBR’s annual tax collection target was revised downward to the tune of Rs0.62 trillion, or Rs620 billion.
The FBR had already faced a revenue shortfall of Rs0.6 trillion in the first eight months of the current fiscal year and now the remaining four months (March to June) period would be adjusted downward on a monthly basis.
On the other hand, the IMF has made it mandatory and binding for the finance ministry to adjust expenditures proportionally in order to achieve primary surplus of Rs2.4 trillion, envisaged for the current fiscal year keeping in view revision in annual tax collection target.
The finance ministry will give a guarantee in writing that the expenditure will be readjusted in line with the reduced tax collection target, said the official.
“There will be no mini-budget and we have pursued the FBR to adjust our target in line with downward revision in nominal growth number. The size of the economy is now revised downward from Rs123 trillion to Rs116.5 trillion for the current fiscal year, so 10.6pc tax-to-GDP ratio will translate into FBR’s tax collection target at Rs12.35 trillion,” top officials involved in holding parleys with the IMF disclosed while talking to The News on Thursday night.
Pakistan and the IMF are holding parleys for completion of the first review under the $7 billion Extended Fund Facility (EFF) and policy level talks are expected to conclude on Friday (today). Both sides are likely to firm up the next budgetary framework through virtual talks or the IMF may send out a small mission in early May 2025 to finalize the numbers of the next budget for 2025-26.
Terming it a major breakthrough, Pakistan and the IMF have agreed for downward revision in nominal GDP growth rate target, including CPI-based inflation. The real GDP growth target has been revised downward from 3.6 percent to around 2 to 2.25pc for the current fiscal year while CPI-based inflation was revised downward from 12.5pc to 7pc on average for the current fiscal year.
With reduction in overall nominal growth, it resulted in slashing down the overall size of the economy from Rs123 trillion to Rs116.5 trillion for the current fiscal year.
One top official told that the FBR made preparations for the IMF parleys through conducting “mock exercise” whereby some internal officials assumed the position of IMF review mission and asked all possible questions. Keeping in view better preparation, it was the first time when the FBR made presentations on almost all the possible queries raised by the IMF visiting mission.
The official said that they convinced the IMF not to raise taxes despite witnessing a shortfall in the first eight-month period. Even the agreed contingency plan for raising tax rates in the shape of withholding taxes or Federal Excise Duty (FED) was put on the backburner, so both sides evolved a broader agreement.
On the expenditure front, the finance ministry gave assurances that it would be reduced proportionally but claimed that the development budget would not be slashed down. However, the pace of PSDP utilisation was dismally slow, so hardly Rs650 to Rs700 billion could be spent against revised budgetary allocation of Rs1.15 trillion.
