The International Monetary Fund (IMF) is looking to further the constraints on short-term borrowings for filling the budgetary gap arising from the expectations that Pakistan’s gross financing needs will be 1.5 per cent higher to its gross domestic product than the previous estimates.
Pakistan’s gross financing needs or money required to finance budgets and honour international obligations may be approximately Rs14 trillion or 30.7 per cent of its economic size during the fiscal year ending June 30, 2021, which is Rs700 billion or 1.5 per cent of the GDP higher than the previous estimates published by IMF in its April report after approval of $1.4 billion emergency funding.
The Ministry of Finance said that IMF and Pakistani government have finalized the arrangements of the country’s financing plan to meet its short-term and medium-term obligations in efforts to revive the $6 billion bailout programme.
The increase in the gross financing needs is primarily driven by the unanticipated decrease in tax collections and an increase in public expenditure, widening the budget gap, sources said.
Earlier, in the last fiscal year ending June 30, 2020, owing to certain uncontrollable circumstances such as the Covid-19 pandemic, the tax revenues declined to bare minimum resulting in even more borrowings as the country’s gross financing needs were 31.2 per cent of the GDP, as per the Federal Board of Revenue.
IMF bailout programme could be revived with the approval of its second review if both the parties reach an agreement on the unresolved issues such as FBR’s actual tax collections, subsidies, and circular debt.
The second review was scheduled for approval in March, however, the government’s failure to plan the budgetary needs effectively and increase in energy prices halted its progress.
Any future agreement is based on Pakistan severely cutting its gross financing needs from the next fiscal year starting July 1, 2021 so it is reasonable to assume that increased tax burdens and reduced public expenditure can be a part of the governance plan for the next fiscal year.
Sources estimate that the gross financing needs for the next fiscal year would dip to 27 per cent which is more than the estimates of 24 per cent made in the April report yet, it still amounts a reduction of up to 4 per cent less than the previous fiscal year.
IMF, in its April report, had also highlighted that Pakistan could effectively improvise it debt sustainability position if it manages to roll over the financial arrangements provided by China, Saudia Arabia, and UAE.
