The International Monetary Fund (IMF) has instructed Pakistan’s government to reduce the budget deficit to 4.9 percent of GDP in the coming fiscal year. This is to establish fiscal stability by cutting spending and raising revenue in order to resurrect the Fund’s dormant project.
This was reported by well-informed sources in the Ministry of Finance, who also told Pakistan that the budget preparations are dependent on the IMF’s stringent requirements for reviving the loan program, which will unlock a $1 billion tranche.
The IMF is pressuring Pakistan to raise its tax collection target for the upcoming fiscal year to Rs.7.5 trillion. During the current fiscal year, the country’s revenue collection is estimated to be slightly higher than Rs. 6 trillion.
According to the sources, the credit agency has also advised Pakistan to cut spending by decreasing subsidies, removing exemptions, and reducing development money for the next fiscal year.
In order to make the fiscal framework viable and cautious in line with the IMF’s standards, the Federal Board of Revenue (FBR) will have to collect additional taxes of Rs. 1,200 to Rs. 1,500 billion in the next fiscal year.
Due to a lack of resources, the government has only used Rs. 423 billion of the total PSDP allocation in the first ten months of the current fiscal year.
The administration will find it difficult to raise salaries and pensions in the 2019 budget since it is under IMF pressure to cut overall spending.
The introduction of a budget for the fiscal year 2022-23 that is compatible with IMF policies will pave the way for a stabilization path, and the government will be forced to make difficult decisions in the following days.