Pakistan's budget built on borrowed money faces a reality check

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The IMF has demanded stricter compliance with programme requirements, especially from the provincial governments in Pakistan, who are believed to have exceeded their development allocations for next year by almost $3 billion than the IMF's estimates read more
The International Monetary Fund (IMF) has tightened scrutiny of Pakistan's budget appropriation amid final consultations. According to reports in Pakistani media, the IMF has demanded stricter compliance with programme requirements, especially from the provincial governments, who are believed to have exceeded their development allocations for next year by almost PKR 850 billion ($3 billion) than the IMF's estimates.
The IMF has also directed the provinces to start levying tax on agricultural income by September this year.
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The fund has also reportedly expressed its displeasure over the government's plan to incentivise enhanced power consumption.
IMF asks provinces to control expenditure
Pakistani newspaper Dawn reported that the fund has asked the provincial governments to control expenditure, something that doesn't conform with expansionary development plans already approved by the National Economic Council (NEC).
On the other hand, provinces have expressed their inability to provide a committed budget surplus this year, citing the Centre's revenue shortfall.
Pakistan's crypto mining project in a fix
Additionally, the IMF has asked the Pakistani government to continue cost-cutting efforts to stabilise the power sector and provide a level playing field to all. It means that Pakistan's move to allocate 2000MW of electricity to crypto farming at a much cheaper rate (PKR 8-9 per unit) than unit base rate (PKR 25 per unit) may face hurdles.
The IMF is against Punjab's plan to provide subsidies for electricity and gas next year, as it did this year. The IMF wants joint efforts to tackle electricity and gas theft and smuggling to reduce financial losses and tax evasion. Provinces will need to streamline their departments next year to align with similar federal efforts this year.
IMF's ultimatum to Pakistan
This follows the IMF's ultimatum last month on how Islamabad should use the $1 billion aid package it provided.
IMF Communication Director Julie Kozack stated that Pakistan has met all the requirements to receive the aid package. However, she emphasised that the funds are strictly to address balance of payments issues and cannot be used for budget financing or other sectors.
'In the case of Pakistan, and this is my second point, the EFF disbursements, all of the disbursements received under the EFF, are allocated to the reserves of the central bank. So, those disbursements are at the central bank, and under the program, those resources are not part of budget financing. They are not transferred to the government to support the budget,' Kozack said.
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IMF's aid to Pakistan has drawn criticism from New Delhi of late.
During the military escalation between the two nuclear-powered nations, India requested the IMF to reassess the bailout, citing Pakistan's allowance of its territory for state-sponsored terrorist activities against Indian citizens.
Defence Minister Rajnath Singh recently described the aid as 'indirect funding to terror' and warned international organisations, including the IMF, to reevaluate their decisions to aid Pakistan.
The IMF has provided Pakistan with $2.1 billion in two instalments under its Extended Fund Facility (EFF) programme. The instalments are part of a $7 billion agreement signed with Pakistan last year.