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The first quarter is over; and back of the envelope calculations depict the government is likely to meet all the quantitative targets of the IMF for quarter end. There are six quantitative performance criteria- and five are likely to be met (read:”IMF targets- all but primary deficit in place”). The basic calculations assert that primary deficit is likely to be met despite over around Rs114 billion fall in indicative FBR revenues target. And according to ministry sources, there was a primary surplus of Rs28 billion in Jul-Aug versus quarter end target of Rs102 billion deficits.

The indicative FBR target, adjusted to Rs75 billion clearance of refunds, is set at Rs1,071 billion. The FBR reportedly collected Rs957 billion, while Rs45 billion refunds are shy of target. The FBR missed the target by Rs114 billion.

The shortfall has a direct bearing on the primary deficit target. But some performance in tax revenues – not part of FBR (such as petroleum levy), and non-tax revenues – such as receipts from telco on licenses renewal and SBP profits, are expected to be better than last year and budgeted numbers of this year. Apart from that, cut in development expenditure by federal government, and by provincial governments (Punjab and KP) are likely to fill in the shortfall in FBR revenues.

That is why FBR chairman Shabhar Zaidi has said earlier this week that there is no need of any mini budget and there is no revenue pressure to increase the GST from 17 to 18 percent. The math is simple. The government smartly benefited from falling international oil prices by not fully passing the benefit to the consumers. In FY19 budget, Miftah quietly increased the petroleum levy (PL) limit to Rs30 per liter for diesel (HSD) and petrol (MS).

During Jul-Sep, the PL on petrol increased from an average of Rs9.8/liter in Jul-Sep18 to Rs15/ liter in Jul-Sep19, and in case of diesel the PL is increased from Rs7.9/liter to an average of Rs18/liter in the 1QFY20. The collection in these two heads in 1QFY20 stood at Rs73 billion versus Rs43 billion in the same period last year. The increment of Rs30 billion will partially compensate the shortfall in FBR revenues. It is pertinent to note that PL is not part of FBR revenues and it does not fall in the federal divisible pool – all the increase is for federal government and nothing to be shared with provinces.

The PL budgeted increase for the full year is estimated at 6 percent and incorporating that increase, the excess budgeted PL in 1Q is Rs27 billion. Another way to calculate is to divide the budgeted amount by 4 to get quarterly target of Rs54 billion and the collection is of Rs73 billion – thus additional Rs19 billion reduce the burden of FBR shortfall of Rs114 billion to Rs95 billion.

The second element is renewal of telco licenses – government got Rs70 billion against budgeted Rs52 billion for full year. Assuming Rs13 billion budgeted for first quarter, the additional amount is Rs57 billion, reducing the shortfall to Rs38 billion. Another amount of Rs35 billion from Zong is due in 2QFY20; and if the amount stuck in litigation is cleared, the government can fetch another Rs105 billion in this fiscal.

Apart from that, SBP profits are going to be higher this quarter. There will be some exchange gains – versus losses of Rs126 billion in the 4QFY19, as exchange rate has appreciated in the 1QFY20. The other jump in earnings would be from transferring of around Rs6.2 billion of SBP T-Bills into PIBs on floating rates – 70-75 bps over T-bills rates (read: “Re-profiling of SBP debt”). This additional income- over and above T-Bills rate, would be around Rs12 billion per quarter. That shortfall would reduce to Rs26 billion.

Mind you, the impact of exchange gains has not been incorporated in this equation. Anyways, the SBP profits are budgeted at high amount of Rs406 billion in FY20 versus mere Rs13 billion in FY19 – and annual average of R283 billion for FY14-18

Any other gap, would easily be covered by reduction in PSDP – according to new report, federal government has released around Rs50 billion against the target of Rs140 billion for the quarter. The situation of Punjab government is no different, as federal government could have release funds to other provinces on the very last day of the quarter – something Dar used to do.

Thus, considering the holistic situation, primary deficit target in all likelihood will be met in the first quarter. All the six performance criteria will be ticked mark. Not a bad start to an otherwise much debated and controversial IMF programme.