Why can’t Pakistan stay on-budget?

Revenue losses from slow rollout of PDL and import compression combined with higher spending needs threaten to break the government’s budget ahead of a crucial review meeting with the IMF. Can Dar keep the EFF afloat?

By Muhammad Ali

ISLAMABAD: Call it lack of fiscal discipline or impossibly tough circumstances, the government’s inability to stay on-budget is set to potentially sour Pakistan’s relationship with the International Monetary Fund (IMF).

The first bone of contention in this connection is likely to be a shortfall in the collection of the federal petroleum development levy or PDL, owing largely to Finance Minister Ishaq Dar’s decision a while back to freeze its rollout to keep the pump prices in check.

In the national budget for the fiscal year 2022-23, former Finance Minister Miftah Ismail had projected to fetch PKR 855 billion from PDL over the fiscal. In practice, however, the collection under this head over the first quarter (JUL-SEP 2022) tallies to a grand total of PKR 47 billion.

At this pace, the whole-year revenue from PDL will weigh in at somewhere between PKR 240 billion to PKR 250 billion, far short of the budgeted target.

This departure from the budget is likely to figure prominently when Fund officials meet Pakistani authorities later this month for the 9^th review of a multibillion-dollar Extended Fund Facility (EFF) that has helped Pakistan avert default on its external obligations.

“The possible collection shortfall on account of [the slow rollout of] petroleum development levy will become one of the major bones of contention in the upcoming review talks”, one top economist feared while talking to this scribe on Friday.

In another worrisome development, pension expenditure has outpaced the expenditure of running of civil government including salaries in the first quarter of the current fiscal year.

Yet another revenue debacle has come in the form of lower collections because of import compression, as a result of which the Federal Board of Revenue (FBR) is facing a revenue shortfall of PKR 22 billion in meeting its October collection target of PKR 534 billion.

What is more, import compression will continue to persist for a while, putting the whole-year target of PKR 7.474 trillion out of reach.

The fiscal position of the federal government has been worsening as its budget deficit crossed PKR 1 trillion mark for the first quarter of the current fiscal year.

The overall budget deficit for the first quarter of the current fiscal year stands at PKR 808 billion or 1 percent of GDP despite a revenue surplus to the tune of PKR 218 billion from provinces. This is a worsening from the budget deficit for the same period last financial year, recorded at PKR 438 billion or 0.7 percent of GDP.

Pakistan’s total revenue collection for the first quarter of the current fiscal stands at around PKR 2 trillion, representing PKR 1.7 trillion in tax revenues and PKR 234 billion in non-tax revenues.

Gross revenue receipts for this period stood at PKR 1.8 trillion and after transferring resources to the provinces to the tune of PKR 0.88 trillion under the NFC Award, the federal government was left with net revenue receipts of a meagre PKR 0.964 trillion.

On other hand, the total expenditure was booked at PKR 1.99 trillion so federal government’s budget deficit jumped up to PKR 1.02 trillion.

The country’s current expenditures stood on higher side as it consumed PKR 1.85 trillion, representing PKR 0.312 trillion on defence, PKR 0.171 trillion on pensions, PKR 0.132 trillion on running of civil government, and PKR 0.74 trillion on PSDP spending.