Federal development spending increased two-thirds to Rs144 billion in the first quarter of current fiscal year amid possibility of a Rs200 billion reduction in budget, in case Pakistan and the International Monetary Fund (IMF) manage to strike a deal for the revival of suspended programme.

During the July-September quarter of current fiscal year, the Public Sector Development Programme (PSDP) expenditure increased to Rs144 billion, according to the Fiscal Operations Summary that the Ministry of Finance released on Tuesday.

The spending was higher by 65% (Rs57 billion) as compared to the same period of previous fiscal year. The expenditure of Rs144 billion was equal to 16% of the annual PSDP allocation.

For the current fiscal year, the country’s parliament has approved Rs900 billion for PSDP spending. However, the government has agreed to cut the PSDP size by Rs200 billion, or 22%, to achieve a slightly negative primary deficit during the current fiscal year.

After remaining active for a brief period, the IMF’s $6 billion loan programme has again derailed since June this year. Both sides are negotiating to revive the programme.

Early last week, it was proposed that Prime Minister Imran Khan should make a call to the IMF managing director to seek concessions. However, subsequently, the plan was shelved and Law Minister Farogh Naseem conveyed Pakistan’s position to the IMF about the State Bank of Pakistan (SBP) Amendment Bill 2021.

Finance Adviser Shaukat Tarin said in a tweet on Tuesday that the news about making a call to the IMF managing director was fake and baseless and such a proposal was never under consideration.

He stated that negotiations “are at an advanced stage and (there is) no need to call”.

However, his tweet contradicts an earlier statement of the adviser himself when he said that agreement with the IMF had been reached and the deal would be announced within two days. The latest tweet suggests that both sides were still trying to bridge the gap.

Sources said that the issue of making a call to Kristalina Georgieva had been discussed early last week. The strategy of announcing a staff-level deal on IMF terms was also discussed, in case Georgieva did not show any leniency, said the sources.

The finance ministry’s fiscal operations showed that the federal budget deficit widened to Rs715 billion in three months (July-September), which was in line with annual estimates.

The deficit of Rs715 billion – gap between federal income and expenditure – during the July-September quarter was equal to 1.32% of gross domestic product (GDP), according to the Ministry of Finance.

The deficit was higher when compared with the same period of previous fiscal year, both in absolute terms as well as in terms of the size of national economy.

During July-September of previous fiscal year, the federal budget deficit was Rs529 billion, or 1.2% of GDP, said the officials.

The gap between federal income and expenditure grew despite a healthy momentum in the Federal Board of Revenue’s (FBR) tax collection. Gains made by the FBR were offset by a 24% dip in non-tax revenues.

The non-tax revenue collection was only Rs249 billion in the first quarter of FY22, down Rs94 billion, or 27%, as compared to the same period of previous year.

The non-tax revenue collection was equal to only 12% of the annual target of Rs2.1 trillion.

The non-tax revenue collection dipped due to a steep decline in the petroleum levy collection. The government received Rs13.3 billion in petroleum levy against Rs136 billion in the same period of last year.

The government has kept the petroleum levy low to absorb some of the impact of high prices in the international market and the losses caused by rupee’s depreciation against the dollar.

Last week, the government increased the petroleum levy to Rs9.62 per litre of petrol to enhance collection on the IMF’s demand.

The central bank profit stood at Rs109 billion in the first quarter of FY22, slightly less than the earnings in the same period of previous year.

Published in The Express Tribune, November 10th, 2021.

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