In the first ten months of the current fiscal year, the federal government granted nearly Rs620 billion in supplementary funding, potentially breaching the revised primary budget deficit target agreed upon with the International Monetary Fund (IMF) three months ago.
The government faces mounting challenges due to the Federal Board of Revenue’s (FBR) inability to meet its tax collection target and control spending. The FBR missed its 10-month target by around Rs400 billion, making it highly unlikely to achieve the revised fiscal goal negotiated with the IMF.
Sources within the Ministry of Finance reveal that Rs267 billion of the Rs620 billion in supplementary grants approved by the federal cabinet for July to April were additional, while technical supplementary grants exceeded Rs350 billion.
Technical grants are issued by adjusting the budget through fund transfers between or within ministries. On the other hand, additional grants are not part of the budget and require National Assembly approval during the budget approval process.
In the final week of April, the finance ministry issued an additional Rs102 billion in supplementary grants to the Power Division to partially address circular debt, bringing the total additional grants to over Rs267 billion, or about 44% of the supplementary grants issued between July and April.
The federal government refused to provide the Election Commission of Pakistan (ECP) with Rs21 billion in additional supplementary grants for elections in Punjab and Khyber-Pakhtunkhwa, citing IMF agreement constraints. However, this claim seems unsupported, considering the Rs620 billion in supplementary grants issued within just ten months of fiscal year 23.
Pakistan and the IMF initially agreed that the government would achieve a primary surplus of Rs153 billion, or 0.2% of gross domestic product (GDP), at the beginning of the current fiscal year. However, due to significant fiscal slippages, both parties later agreed to a primary deficit of 0.5% of GDP, or Rs 440 billion.
A recent Debt Sustainability Analysis (DSA) report by the Ministry of Finance indicates a primary deficit of over Rs1 trillion, or 1.2% of GDP. With provinces already distributing funds before elections, generating a surplus of Rs600 billion, or 0.7% of GDP, seems unlikely.
The unbudgeted Rs100 billion wheat flour subsidy alone will cause the cash surplus target to be missed. As a result, the Ministry of Finance projects a primary deficit of 1.2% of GDP for the fiscal year 2023. The government is anticipated to not achieve a primary budget surplus in the upcoming fiscal year, with a deficit of at least 0.2%.
Due to the FBR’s underperformance, which fell significantly short of its 10-month target, even the goal of 0.5% of GDP will become unattainable. These indicators suggest the government will struggle to meet its IMF commitments. The Ministry of Finance has declined to comment on this matter.
Of the Rs620 billion in grants, approximately Rs103 billion were issued as development budget-related technical grants, reflecting the Ministry of Planning’s adjustments to allocations for various projects. As a result, the funds were transferred from low-priority initiatives to those with greater political benefits.
Sources state that last week, the Ministry of Finance provided Rs102 billion to the Power Division, bringing the additional supplementary grant for circular debt over the past two months to Rs205 billion. The government had budgeted Rs570 billion for power subsidies for the current fiscal year. However, after a recent agreement with the IMF, this amount will increase by Rs335 billion to a minimum of Rs905 billion.
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