ISLAMABAD: Technical talks between Pakistan and the International Monetary Fund (IMF) are ongoing to finalize the blueprint and important features of the upcoming budget for 2020-2021 in a post-COVID-19 pandemic situation.
High officials said that the IMF had also linked the resumption of the Extended Fund Facility (EFF) program with the subsequent budget approval for 2020-21 according to a broader framework in which both parties would agree as a consequence of ongoing technical talks. Technical talks are ongoing through virtual engagement with the Washington-based IMF team.
The IMF estimates that Pakistan needs gross external financing of $ 29.3 billion in the next budget compared to $ 25 billion for the 2019-20 fiscal year out.
This shows that Islamabad must increase its dependence on foreign loans to meet its financial requirements if the country is still unable to attract non-debt which creates an influx of dollars that becomes very difficult after the outbreak of a coronavirus pandemic.
Future budget directions must be aligned with structural reforms considered in the $ 6 billion EFF program. The IMF has agreed with Pakistan to revise all macroeconomic and fiscal frameworks in the post-COVID-19 situation so that the revival of the EFF requires a broader agreement after new realities in the economy emerge. Now the completion of the second review under the EFF and the release of the third tranche worth $ 450 million will be completed after the budget will be approved by the National Assembly at the end of June 2020. It has not been decided whether the second and third reviews will be beaten or approved by the Fund Executive Board separately. “Technical level talks have taken place,” said a top Finance Division official and explained that the technical talks could only be converted into review talks when the budget would be approved by Parliament.
The official said that the technical talks aimed at developing consensus on a macroeconomic and fiscal framework in which some important figures such as budget deficits, primary deficits, FBR revenue collection targets and major expenditure heads and structural reforms related to state autonomy. central banks, tackling the electricity sector’s circular debt monsters and bringing reforms into the taxation engine.
The IMF has provided a FBR tax collection target of Rs10,101 billion for the next budget compared to the revised target of Rs3,908 billion for the coming fiscal year, indicating that it needs around 31 percent growth to realize the desired target.
The FBR high-up believes that the target of the next fiscal year of Rs10,101 billion can be achieved without additional income measures provided that economic activity is restored at full swing with the beginning of the next fiscal year. However, if partial locking continues into the first quarter of the following fiscal year, the FBR must take additional income measures such as the Super Corona Tax consideration to realize the desired target.
Dr Khaqan Najeeb, who has served as an Adviser at the Ministry of Finance, commented that before making new taxes, the authorities must use compliance to ensure revenue. He explained that a 50 percent tax gap exists according to two studies that will help in achieving the target next year.
An FBR official, when contacted, said that no target collection could be considered a sacrifice because the desired target cannot be achieved without having a base and can be adjusted according to the realities of the land. He reminded that the FBR target was considered at Rs5,555 billion on the eve of the budget for 2019-2020 which was first revised down to Rs5,238 billion. Then the IMF thinks the FBR should collect Rs4,803 billion for the current fiscal, but the FBR is eyeing to collect Rs4,750 in the pre-COVID-19 scenario. Now the IMF itself is revising down its target to Rs 3.908 billion for the end of June 2020. The target continues to change to be in line with new realities so that the target of the next fiscal year will also depend on the resumption of economic activity.
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