Former Finance Minister Dr Hafiz Pasha told Business Recorder that fiscal consolidation will be a prior IMF condition for a new programme so as to bring down the deficit to 4.6 percent from over 7 percent for 2017-18. Hafiz Pasha said that the government's overspending by Rs 1030 billion has increased the budget deficit by 3 percent from the targeted 4.1 percent for last fiscal year. He added that Pakistan was able to successfully reduce the deficit during the last IMF program and when the program ended in 2016 the budget deficit was at 4.6 percent. However, since then, there was serious fiscal indiscipline which accounts for the budget deficit at over 7 percent of the GDP in 2017-18.
Dr Pasha pointed out that one of the conditions of the IMF may be to bring down the deficit to the 4.6 percent in the current fiscal year which would require: (i) reversal of all the exemptions; (ii) withdrawal of relief in income tax to individuals; (iii) reversal of reductions in tax rates; (iv) withdrawal of concessions in super tax; (v) re-imposition of tax on bonus shares; (vi) removal of distortions in the income tax regime; and (vii) withdrawal of customs duty exemptions granted through notifications and SROs.
The government was projecting that the relief of Rs 184.499 billion provided in the budget would be offset by the revenue mobilized through the tax amnesty scheme. However, the government has acknowledged that the declarations have paid around Rs 97 billion out of which around Rs 36 billion have been collected on foreign assets and 61 billion on domestic assets.
Dr Pasha said that the government is not collecting sales tax as per its actual potential and there is a need to increase sales tax rate to mobilize revenue.
Additionally, he said as the privatization agenda was left unfinished in the last Extended Fund Facility (EFF) programme, the new government may be required to fulfill the un-finished privatization agenda of Pakistan Airlines and power sector distribution companies. He added that the economy is not in good shape and the IMF conditions are likely to be very stringent if the political leadership decides to go on a new program. Compliance with these conditions in the existing economic situation would be an extremely challenging task, Pasha added.
The government may be asked to fulfill privatization of PIA and distribution companies promised in the last program, Dr Pasha added.
Another condition by the IMF may be elimination of inter-Disco tariff differential subsidy of Rs 120 billion and pass on 15 to 20 percent electricity tariff to the consumers.
The new government may also be asked to transfer Higher Education Commission and vertical program to the provinces as these are provincial subjects after the 18th Constitutional Amendment and thereby saving Rs 140 billion in the new budget.
Dr Pasha said that the previous government printed Rs 1350 billion currency notes which was not allowed during the EFF program and obviously this would not be allowed if Pakistan takes a new programme. Instead, the Fund will press for raising interest rates further (for borrowing from commercial banks and national saving centers).