KARACHI: The implementation of measures announced by Pakistan in its federal budget for the next fiscal year is clouded by the uncertain outcome of the country’s negotiations with the International Monetary Fund (IMF) over conditions attached to a $6 billion loan program, said Pakistani economists on Saturday.
The country’s finance minister Shaukat Tarin presented a deficit budget on Friday with a total outlay of Rs8.4 trillion ($53.93 billion) and a revenue generation target of Rs5.82 trillion.
The revenue generation target fixed by the government is lower than the IMF demand of Rs6 trillion against the expected collections of Rs4.7 trillion in the current fiscal year.
Tarin presented the budget ahead of the sixth IMF review under the $6 billion bailout program which the country decided to avail in 2019.
The revenue generation target is one of the key topics in the negotiations between the two sides which is 23 percent higher than the current year’s expected collection.
Reacting to the measures adopted in the new budget, economists said the key challenge for the government would be to deal with the IMF and address the uncertainty surrounding the talks.
“I think the main challenge relates to the outcome of the government-IMF talks,” Dr. Sajid Amin Javed, senior economist at the Sustainable Development Policy Institute (SDPI), told Arab News. “It is creating uncertainty at this point which must be addressed as soon as possible.”
Muhammad Sohail, chief executive officer of Topline Securities, agreed with him, though he also maintained that the government would need to control rising commodity prices.
Khurram Schehzad, a senior financial analyst, also expressed his concern over the Pakistan-IMF negotiations.
“Handling the IMF on potential revenue shortfall and convincing them smartly to let us play our game and allow us to set our house in order in our own way would be huge challenges,” he said.
As the Pakistani authorities and IMF officials negotiate the conditions attached to the fund’s loan program, the international financial institution is likely to continue its effort to help the country deal with the COVID-19 situation.
“We are ready to support Pakistan navigate the difficult COVID crisis while ensuring the objective of debt sustainability and strong and sustainable growth,” Teresa Dabán Sanchez, country head of the IMF, told Arab News last month.
“As such, we look forward to our continued discussion with the Pakistani authorities when the times comes for the 6th review,” she added.
Meanwhile, Pakistani fiscal budget for FY22 was described as “pro-growth” by some economists and members of the business community.
“The budget is growth-oriented which offers major concessions to the manufacturing sector via reduction in custom duties on the import of raw material,” Samiullah Tariq, director research at the Pakistan-Kuwait Investment, said.
“This budget is good in terms of setting our direction in the short run,” Dr. Javed of the SPDI said. “If implemented in letter and spirit, it will mitigate the impact of the COVID-19 pandemic.”
Uzair Younus, a political economist, maintained the budget would catalyze near-term growth and create some optimism about the economy.
“It is also good to see that efforts have been made to catalyze manufacturing. However, the medium-term concerns with regard to sustaining equitable growth will persist,” he added.
Schehzad termed the budget as “tax-light and business-friendly” with various growth ingredients.
“Let me call it a corrective budget since we were previously putting greater tax burden on the economy and people with some of the predatory and exploitative taxes, ranging from turnover to withholding taxes, super taxes, to a lot many more,” he added.
He maintained that the government would also have to deal with inflation which was “likely to remain in a high trajectory” given the spike in global food and commodity prices.
Discussing the shortcomings of the budget, Dr. Javed observed it did not provide a roadmap to address the structural challenges faced by the economy, such as circular debt and losses made by state-owned entities.
Younus agreed with him, saying “it will be interesting to see whether the increased growth momentum will create space for the government to make tough economic choices” related to these two problems.
Some economists also described the budget as an “attempt to balance the books.”
“Tax targets are as usual not based on any cogent measures except clichés to use technology to broaden the tax base which is easier said than done,” Dr. Ikram ul Haq, a senior economist, said.
Miftah Ismail, a former finance minister, maintained the government had not done enough to protect the poor from the inflationary pressure.
“Instead of reducing the prices of essential commodities, their rates will go up,” he said, adding that the revenue collection target was not likely to be achieved by the government.
However, the country’s business community expressed its satisfaction with the budgetary measures, including the third-party tax audit and reduction in the discretionary powers of tax officials.
“Our major demands have been accepted,” Mian Nasser Hyatt Maggo, president of the Federation of Pakistan Chambers of Commerce and Industry, told Arab News. “If all the measures are implemented as announced in the budget, the economic growth will touch five percent in the next fiscal year.”
