Budget talks with IMF start today
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The International Monetary Fund (IMF) will begin virtual discussions on Pakistan's upcoming budget on Wednesday (today), as the visit of its mission to Islamabad has been delayed due to security concerns in the region, government sources told The Express Tribune on Tuesday.
The virtual talks will take place as the global lender has appointed a new mission chief to Pakistan. According to sources, the IMF mission delayed its scheduled arrival in Islamabad on Tuesday due to uncertainty caused by Indian aggression, which affected air travel across the region.
However, the sources added that the mission is now expected to travel to Islamabad over the weekend, subject to the security situation. They emphasized that the adjustment would not adversely affect the work or the original programme schedule.
The talks are set to begin on May 14 (today) and continue until May 16. "Virtual discussions are expected to be held. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23," the source said.
The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry Spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans.
Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter — who served in the position for an extended term.
Porter was known for his firm stance on policy issues, but was averse to public interactions. He also kept a tight control over the Finance Ministry's media policy. Mahir did not comment whether both outgoing and new mission chiefs would join both rounds of talks.
Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia.
The government of Pakistan is planning to unveil the budget for fiscal 2025-26 on June 2 — before the Eidul Azha holidays. This will be Finance Minister Muhammad Aurangzeb's second budget speech, which has to be in line with the parameters that the IMF will set during these talks.
The fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6% of the GDP primary budget surplus, which will require generating about Rs2 trillion over and above the non-interest expenses.
The tax target for the Federal Board of Revenue (FBR) is proposed to be 11% of the GDP or Rs14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources.
The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1% of the GDP or Rs6.7 trillion, they said.
According to the sources, on the first day of talks the Finance Ministry would apprise the IMF mission of the fiscal developments during July-March period of the current fiscal year. It will also share details of supplementary grants approved during the fiscal year.
The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces.
Against a primary surplus target of Rs2.7 trillion, the federal government reported a surplus of Rs3.5 trillion, or 2.8% of GDP. This higher surplus was primarily due to fully booking the annual central bank profit in the first quarter, with the entire estimated profit of Rs2.5 trillion already accounted for.
The four provinces collectively generated a cash surplus of Rs1.028 trillion during the first nine months, exceeding the IMF target by Rs25 billion. The federating units also generated Rs685 billion in tax revenues, surpassing the IMF target by Rs79 billion. But against a nine-month revenue target of over Rs9.2 trillion, the FBR pooled Rs8.5 trillion, falling short of the goal by Rs715 billion.
The IMF has also asked the government to give an update on any savings from the planned downsizing of the government. The next fiscal year's non-tax target will also be discussed during the first day of the talks, mainly the prospects of petroleum levy collection and the central bank profits.
The FBR will give an update on the tax performance in April and the chances for the remainder of this fiscal year. The tax shortfall has ballooned to a staggering Rs830 billion in the first 10 months of the fiscal year, despite the government imposing record additional taxes and reducing refunds.
Only in the month of April, the government added around Rs135 billion in the tax shortfall, breaching commitment to the IMF that the shortfall against the original annual target will not be more than Rs640 billion.
The FBR has provisionally collected Rs9.3 trillion in taxes by the end of April. Though, the collection was around 27% or Rs1.95 trillion higher than the previous fiscal year, yet it is not enough to stay on track.
The sources said that on the first day, the discussions will also take place on the so-called enforcement measures in the areas of track and trace, retailers scheme and compliance risk management. The FBR has miserably failed in all these areas and its collection is largely driven by the additional tax measures.
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Middlemen, who are either locals or longterm migrants posing as locals, supply labour to factories in Maharashtra, India's industrial heartland. In return, the middlemen skim between $11 and $17 from each worker's wages. In addition, $7 is deducted monthly from their pay for canteen food, which consists of limited portions of rice, dal and vegetables for lunch, as well as evening tea. Asked why he continues to work at the steel factory, Ravi tells Al Jazeera with resignation in his voice: 'What else can I do?' Giving up his job isn't an option. His family – two young daughters in school, his wife and mother who work on their small plot of farmland, and his ailing father who is unable to work – depend on the $100 a month that he is able to send home. Climate change, he says, has 'ruined farming', the family's traditional occupation. 'The rains don't come when they should. The land no longer feeds us. And where are the jobs in our village? There's nothing left. 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India's top engineering schools, the Indian Institutes of Technology (IITs), have long prided themselves on how the world's biggest banks, tech giants and other multinationals queue up at their gates each year to lure their graduates with massive pay packages. Yet, the percentage of graduates from the IITs who secure jobs as they leave school has dropped sharply, by 10 percentage points, since 2021, when the Indian economy took a major hit from COVID-19 – a hit it hasn't fully recovered from. 'Even graduates with high ranks from premier institutions like the IITs are struggling to secure job placements,' Ghose says. 'With limited options available, job seekers are forced to accept whatever work they can find. This leads to exploitation, unfair working conditions, and, in some cases, forced labour.' Pramod Kumar, a former United Nations Development Programme (UNDP) senior adviser, adds that weakened private investment and foreign direct investment (FDI) have made national growth largely dependent on government spending. Consequently, job opportunities are primarily limited to the informal sector, where unfair working conditions are prevalent, leading to exploitation and forced labour. Private sector investment in India dropped to a three-year low of 11.2 percent of gross domestic product (GDP) in fiscal year 2024, down from the pre-COVID average of 11.8 percent (fiscal years 2016-2020), according to ratings firm India Ratings & Research. Additionally, FDI in India declined by 5.6 percent year-on-year to $10.9bn in the October-December quarter of the last fiscal year, driven by global economic uncertainties. Against that economic backdrop, Poonia, from the India Labour Line, says he can't see how the government plans to meet its ambitious target of rescuing 18 million bonded labourers in India. He said he expects the opposite. 'The situation is going to worsen when the ease of doing business is prioritised over human rights and workers' rights.'
