With the International Monetary Fund (IMF) and Pakistan facing a deadlock over key issues, the international creditor has told the Shehbaz Sharif government to cut down its defence expenses to resume a stalled loan programme.
According to a source in the Pakistan’s finance ministry, the government is worried about IMF’s “rigid and tough demands”, including audit of defence bills.
The IMF delegation, which is currently in Pakistan, has proposed key changes, including defence pensions should be shown as part of the defence budget.
The defence personnel yearly pension expenditure is over Rs 400 billion, which has been shown as civil expenditure in the budget since the government of General Pervez Musharraf.
At present, Pakistan’s 50% of the national budget is consumed by debt servicing, followed by 26% on military.
The IMF had also asked the Sri Lankan government to slash its armed forces over the course of the year in an effort to get a handle on public expenditures amidst its bleeding coffers.
According to the Sri Lankan Ministry of Defense, the move will see the Sri Lankan Army shrink to 135,000 by next year from 180,000. It will then further cut down to 100,000 by 2030. Defence allocation of Rs 539 billion in Sri Lanka’s budget 2023 has also drawn IMF’s criticism.
Other demands of IMF from Pakistan include increase in petroleum levy, flexible exchange rate, new taxes to fulfill revenue shortfall and more electricity and gas tariffs.
The Pakistan economy will reportedly see a 30% hike in electricity prices and a drastic hike as much as 60%-70% in gas prices.
Inflation is estimated to increase by another 5%-10% from the present level of 35% to 40%.
The State Bank of Pakistan freed up the dollar on market value on January 28, which dropped its rupee value to Rs 270 in internal and Rs 280 plus in open market.
The government also jacked up petrol and diesel prices by Rs 35 per litre with immediate effect.
It is estimated that the government will pocket an additional Rs 4.5 billion in three days as it had announced the changes from February 1.
The government increased the Petroleum Development Levy (PDL) by Rs 5 per litre on High-Speed Diesel (HSD) so the PDL now stood at Rs 40 per litre. There is still Rs 10 per litre space available to the government, which will be increased in the coming weeks and months in order to jack up the PDL up to Rs 50 per litre.
The IMF may ask the government to impose sales tax on petrol which is already proposed by FBR to the finance ministry.
Despite all this, the IMF has found an over Rs 2,000 billion (Rs 2 trillion) breach in budgetary estimates for 2022-23 in its initial assessment.
The IMF also proposed to take additional taxation measures of Rs 600 billion through a mini-budget.
The IMF has assessed that the government did not recover the Fuel Price Adjustment of Rs 65 billion for the current fiscal year.
The IMF said the FBR’s tax collection is projected to hover around Rs 7,000 billion against the FBR’s envisaged target of Rs 7,470 billion for the current fiscal year. The FBR had faced a shortfall of Rs 225 billion in achieving the December 2022 tax collection target.
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