Business Recorder
EDITORIAL: The International Monetary Fund (IMF) concluded its mission to Pakistan (13 to 20 May) and in a press release noted that the “staff visit focused on recent economic developments, reform implementation and the budget strategy for fiscal year 2027.” This led to conclusion by independent domestic economists that an agreement was reached between the government authorities and the Fund staff with respect to the expenditure and revenue allocations in the budget and the projection that the likely budget presentation date in the national assembly will be 5 June subject of course to the availability of critical members of the cabinet. The mission was, therefore, not in-country to initiate a staff level agreement on the fourth review of the ongoing 7 billion-dollar Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF) or to engage in Article IV consultations, but specifically for approval of the budget and one may well regard this exercise as a “prior” condition. The press release noted that the government remained committed to achieving a primary surplus (excluding grants) of 2 percent of GDP in 2027, a projection made in the recently released third review of the EFF and the second review of the RSF documents, with the current year’s programme target of 3.4 percent missed by 0.1 percent (3.5 percent). What is perhaps more relevant is the figure cited under underlying primary balance (excluding grants) that did not include one-off transactions was estimated at 1.6 percent in the current year, 1.3 percent programme target with 2 percent as the projection for next fiscal year; hence not included is the 1.25 trillion rupees borrowed by the government to retire the energy sector circular debt with interest payments to be passed onto the consumers as well as the sale of the Pakistan International Airlines that has netted the government 10 billion rupees with the remaining over 125 billion rupees to be in the form of equity into the airlines at a later stage with no deadline. The note also refers to support for measures that will ensure fiscal sustainability and this too is explained in the third review documents as follows: tax revenue mobilization is envisaged by: (i) eliminating sales tax expenditures, through increasing GST C-efficiency ratio that has declined from 27.4 percent to 22.8 percent over the past ten years – defined as a measure of how effectively a country collects its Goods and Services Tax by comparing actual revenue collected against the theoretical revenue that would be generated if the standard GST rate were applied universally to all consumer spending without any exemptions or collection losses - sales tax is an indirect tax whose incidence on the poor is greater than on the rich; (ii) improving compliance through the proactive application of the audit function of the Federal Board of Revenue; and (iii) increasing provincial revenues mainly through the implementation of the agriculture income tax at the same rate as is levied on all other sources of income. And finally, the press release notes: “State Bank of Pakistan reiterated its commitment to maintaining an appropriately tight monetary policy stance to anchor inflation expectations and will continue to closely monitor potential second-round effects from energy price increases. Furthermore, exchange rate flexibility should continue to serve as a key shock absorber, and efforts should continue to build a deeper foreign exchange interbank market.” The supply disruptions due to the ongoing Middle East conflict need to end before inflation can come down not only in Pakistan but other countries that rely, directly or indirectly, on Gulf countries, as well; however in the case of Pakistan the policy rate, at a high of 11.5 percent which compares extremely unfavourably with other regional competitors today, is expected to rise further with further negative implications on the debt service component of the budget as well as on lower private sector credit – elements that will constrain growth that in turn will increase unemployment that would no doubt raise the risk of staying on the programme. To conclude, one must wait for budget to be presented to parliament to gauge exactly what the authorities agreed to that would have serious consequences for the common man’s kitchen budget though, sadly, indications are that it would be an extremely harsh budget for the common man. Copyright Business Recorder, 2026
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