5.3 percent budget deficit estimated for current fiscal: IMF approval required

The government has estimated 5.3 per cent budget deficit for the current fiscal year on the basis of cut in expenditure and proposed revenue measures to be implemented from April 1 and is requesting International Monetary Fund (IMF) for its approval, it was learnt.
Sources said that projection of 5.3 per cent fiscal deficit was worked out on the assumption of imposition of 15 percent flood tax and special excise duty as well as withdrawal of sales tax exemptions and special rates from April, 1 2011. The major concern of the IMF during the negotiation, an official said, was that Pakistan does not have a credible framework on fiscal side and without sustainable framework both on revenue and expenditure sides economic stability was not possible. In reply to a question whether the IMF would allow increase in fiscal deficit, the official said the talks are ongoing on end June budget figure for the current fiscal year as well as on tentative budget framework for the next fiscal year.
The fiscal deficit, he said if not controlled through cut in expenditure would touch over 8.4 per cent for the current fiscal year. The proposed saving from cut in expenditure, he said is Rs 10 billion from flood relief assistance, Rs 20 billion from current expenditure as well as Rs 35 billion from BISP Rs 20 billion from Internally Displaced Persons (IDPs) allocations.
A slash in Public Sector Development Program (PSDP) would save Rs 100 billion and provinces have been requested to give Rs 100 billion surplus budget for the current fiscal year from the allocation transferred to them under the National Finance Commission Award (NFC). The proposed 2 per cent monthly increase in power tariff from April, 1 would help reduce subsidy to the power sector.
The revenue measures proposed from April 1 to contain fiscal deficit at 5.3 per cent for the current fiscal year are imposition of 15 per cent flood surcharge and an additional 1.5 per cent special excise duty from April 1. These measures would mobilise Rs 26 billion.
The withdrawal of exemptions and special duty enjoyed by various sectors is also proposed. An official of the Federal Board of Revenue (FBR) on condition of anonymity told media this was assured to the IMF that implementation of 2 per cent increase in power tariff as well as flood surcharge and special excise duty would start from April 1, 2011.
The increase in 2% power tariff may be announced in the current month because of pressure from the IMF but it would be passed on in the next month bills. This was long standing understanding with the IMF to eliminate subsidy on power sector and would have to be implemented by passing on 2% monthly tariff in the remaining three months of the current fiscal year. According to the official of the FBR fiscal deficit and revenue collection plan for the current fiscal year as well for next year would be discussed with the IMF today (Thursday).