MONDAY JUNE 27: IMF unlikely to be convinced of reactivating SBA: FY12 budget targets unimpressive

ISLAMABAD: The government is unlikely to convince the International Monetary Fund (IMF) of reactivating the stalled Stand By Arrangement (SBA) based on its 2011-12 budget targets, sources told Business Recorder.
The 4 percent fiscal deficit target is increasingly being viewed as an unimpressive attempt to convince the IMF, which the government is committed to meeting this critical condition. However, analysts argue that even this target is unlikely to be met, and the actual deficit would be closer to 5.5 percent, based on a more realistic assessment of revenue and expenditure targets.
The estimated 1.3 billion dollars inflows on account of privatisation proceeds, Euro Bonds, and the 0.6 percent budget surplus from the provinces are not expected to be realised in a mere three weeks, after the budget was announced.
The budget estimated around 800 million dollars from privatisation proceeds and 500 million dollars from Euro Bonds in the next fiscal year are an unlikely source of revenue as the 500 million dollar Euro Bond failed to materialise during the outgoing fiscal year.
Sources said that after the provincial budgets were announced (showing a consolidated 5.5 billion rupees deficit, instead of the 125 billion rupees surplus envisaged in the federal budget), the fiscal deficit for next year would be 4.6 percent, instead of 4 percent. Any slippage on revenue or expenditure side would keep on adding to 4.6 percent fiscal deficit, they added.
Sources said that Rs 1952 billion revenue collection target would be a challenge for the Federal Board of Revenue (FBR), which has not been able to capture nominal growth of inflation in revenue collection. The expenditure side is also understated, particularly on account of power subsidy, and it may be impossible for the government to increase power tariff with election year approaching. The power subsidy, on account of tariff differential estimated at Rs 50 billion for the current fiscal year, is unlikely to be achieved, and the subsidy may go up considerably, they said.
Analysts say that the increase in fiscal deficit would compel the government to borrow from the banking system, and slashing development expenditure would fuel inflation and squeeze credit to the private sector and consequently have a negative impact on growth.
Sources added that the 4 percent fiscal deficit premised on an overestimated revenue collection target and understated expenditure is not going to convince the IMF or other bilateral and multilateral donors as well as domestic stakeholders.