Pakistan: Evaluation by IMF

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The visiting International Monetary Fund (IMF) team in Islamabad for the purpose of carrying out Post-Programme Monitoring (PPM) has reportedly informed the Ministry of Finance that even the scaled down budgeted tax revenue collections are unrealistic and suggested that they be further revised downward to 2,231 billion rupees. The tax collection estimates were scaled down by the Federal Board of Revenue from the budgeted 2,503 billion rupees to 2,381 billion rupees. The reason, reports indicate, are a slowdown of the economy, electricity and gas shortages which continue to compromise the country's capacity to produce, escalating reliance on bank borrowings which continues to crowd out private sector borrowings, thereby disabling a powerful engine of growth, and expected failure to either realise foreign inflows from the stalled auction for 3G licences or generate the amount due from Etisalat under PTCL privatisation due to failure to ensure that all properties agreed under the sale have been handed over. The outcome would be a higher budget deficit than was envisaged. The budgeted deficit was estimated at 4.7 percent for the current fiscal year and it does not take the IMF to conclude that the deficit would be missed. Business Recorder has consistently argued that the past three years budgets are unrealistic in terms of (i) expenditure allocations, with over 300 billion rupees more disbursed than budgeted for untargeted subsidies and (ii) revenue generation capacity reflected by borrowings exceeding the budgeted amount by around 600 billion rupees in the last fiscal year alone. Thus, unfortunately, the revised budget estimates have proved the newspaper right. It has been suggested time and again that it would be in the national economic interest if the Ministry of Finance would begin a budgetary exercise that would be premised on realistic targets. The deficit, as per the IMF, would therefore be a lot higher than what was indicated in the 2012-13 budget documents. The exact deficit would of course depend on several decisions that maybe taken during the course of the current fiscal year, including major policy decisions that may be taken by the caretakers and which maybe at variance with what the present economic team is engaged in; however, a look at last year may well show by how much this government is capable of understating the deficit estimate. In last year's budget, Dr Hafeez Sheikh, the Federal Finance Minister, indicated a budget deficit of 4 percent while negative 7.4 percent was realised at the end of the year as per the budget documents. This figure included a whopping 346 billion rupees disbursed under power and food sector subsidies which, budget documents maintained would, if excluded, reduce the deficit to 5.5 percent. However, there can be no economic rationale for exclusion of unbudgeted subsidies. Gross Domestic Product (GDP) growth rate was estimated at 4.3 percent in the current year's budget documents - an amount that is unrealistic or so the IMF has indicated. It is unrealistic for two broad reasons, both known to the country's economic team. First and foremost, the GDP data does not indicate the changed sectoral priorities based on five to six years of detailed surveys that also required a changing of the base year to reflect a period other than when Pakistan was isolated by the international community after the Musharraf coup; the reason is an executive order of the Finance Minister to the Federal Bureau of Statistics to continue calculating the GDP growth within the same parameters. Secondly, the GDP estimates have in recent years been deliberately overstated to justify an unrealistic revenue collection target. It is unclear why the Ministry of Finance continues its policy of presenting unrealistic targets, and some of its data has been recently challenged by other members of the cabinet specifically the inflation figure, as it achieves no purpose and, need one add, fools no one. It doesn't even provide a reprieve to the Ministry of Finance as no one lends credence to the data released on the day of the budget. Pragmatism if not integrity would, one hopes, begin to compel the ministry to present realistic data.