Budget postponement raises multiple questions

EDITORIAL: In a press release dated 29 May President Asif Ali Zardari summoned the budget session of the National Assembly and Senate on 3 June for budget presentation on 5 June; however, the presentation has been postponed till 10 June, according to a senior PML-N leader, Tahira Aurangzeb, though a notification by the parliament secretariat remains pending.

This delay or postponement has raised multiple questions, especially given the press release issued by the International Monetary Fund (IMF) team after a recently concluded week-long visit to Pakistan (13 to 20 May), which explicitly stated that the focus of the visit was on recent economic developments, reform implementation and budget strategy for fiscal year 2027.

Taken in conjunction with the detailed documents released on 15 May on the third review of the ongoing Extended Fund Facility (EFF) programme and the second review of the Resilience and Sustainability Facility (RSF), which contained an assessment of the recent economic developments (with the remark that the Middle East conflict’s fall-out on Pakistan has been ‘contained’ so far), reform implementation (with emphasis on keeping fuel and energy tariffs in line with cost recovery to avoid unaffordable subsidies and fiscal costs, while protecting vulnerable consumers with targeted support and continuing to implement reforms to address the high costs of energy), and the budget strategy, which implied discussions and agreement on the proposed budgetary expenditure and revenue sources.

What is patently obvious since the 2019 EFF programme - Pakistan has secured three additional programmes since notably the 2023 nine-month-long Stand By Arrangement, the 2024 EFF and the 2025 RSF - that neither the IMF nor the friendly countries (Saudi Arabia and China) are receptive to any phasing out of the harsh upfront conditions that the Fund is insisting on due to our appalling track record in implementing the agreed conditions in the previous programmes.

Thus it stands to reason that any failure to implement any of the recently agreed conditions, agreed two weeks ago, will generate a delay in the fourth review of the EFF and the third review of the RSF, thereby leading to not only a delay in the next tranche release, and refusal of the friendly countries to delay the over 9 billion dollars rollovers that are critical to strengthening foreign exchange reserves but may eventually lead to a suspension of the programmes as happened in 2023.

In this context the delay is being attributed to the Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal’s lament that the funds budgeted by the Finance Ministry for Public Sector Development Programme (PSDP) fall far short of requirements/demand by a whopping 3 trillion rupees – funds that in Pakistan spearhead growth. Others argue that the Federal Board of Revenue (FBR) has expressed concern that the target set is just too high or that the revenue source identified may not generating the projected funds.

These are legitimate concerns; however, it is relevant to note that the provincial surplus required in the federal budget in the outgoing year, 1,464 billion rupees, was only budgeted to be met by the Punjab government (740 billion rupees) while all other provinces presented budgets that failed to meet their targets – Sindh budgeted a deficit of 38.45 billion rupees, Khyber Pakhtunkhwa a surplus of 157 billion rupees and Balochistan a surplus of 51.5 billion rupees.

The total revenue agreed between the Fund and the government constituted three major sources: (i) audit which is likely to be met, given FBR’s proactive approach however there is danger that this may strengthen capital flight and/or relocation of industry outside the country; (ii) GST compliance efficiency ratio, an indirect tax whose incidence on the poor is greater than on the rich, that the Fund argued has fallen from around 27.4 percent to 22 percent over the past ten years and requires a levy on other items that may well increase the poverty levels that when calculated at calorific value are at a concerning level of 43 percent; and (iii) raising enforcement of GST through “production monitoring, adoption of digital invoicing and FBR retailer registration,” while provinces “should accelerate the collection of GST on services by strengthening enforcement,” particularly relating to agricultural income tax. These recommendations reflect political resistance in the past, and one is hard-pressed to concede that it would be easy to implement next fiscal year.

To conclude, the ideal solution initially would be to curtail current expenditure by at least 2 trillion rupees in the current year, a curtailment not based on the assumption that the policy rate will decline as in the current year - an assumption that did not materialize - and instead to slash all budgeted outlay that is not earmarked for operational expenses that would automatically reduce the pressure on tax revenue and hopefully raise allocation for PSDP.

Copyright Business Recorder, 2026