Pakistan has missed three out of five major fiscal conditions set by the International Monetary Fund (IMF) for the first quarter of fiscal year 2025, including achieving a cash surplus of Rs342 billion by provinces, confirmed an official report of the Ministry of Finance.
The ministry on Thursday released the fiscal operations summary for the July-September quarter of the current financial year. It showed that Pakistan achieved the IMF targets of primary budget surplus and net revenue collection by the four provinces.
The federal government met the major condition of a primary surplus of Rs198 billion, which in fact crossed Rs3 trillion, or 2.4% of gross domestic product (GDP). The higher surplus was mainly because of fully booking the annual central bank profit in the first quarter.
The entire estimated central bank profit of Rs2.5 trillion has been accounted for in the first quarter, which will be leveled in the coming months.
The report disclosed that Punjab’s budget was in the red as it ran a deficit of Rs160 billion in three months. All other provinces enjoyed a cash surplus.
Three conditions related to generating Rs342 billion in cash surplus by the four provinces, collecting Rs10 billion from traders and achieving Rs2.652 trillion in tax target were missed by wide margins.
The Ministry of Finance’s report showed that the cumulative target of Rs342 billion in the provincial cash surplus could not be met, thanks to the expansionary fiscal policies of Punjab. The target was missed by Rs182 billion, or 53%, underscoring serious challenges in implementing a $7 billion IMF programme.
The provinces posted a total cash surplus of Rs160 billion, according to the finance ministry. They spent Rs1.76 trillion during the first quarter, a year-on-year increase of Rs437 billion, or 33%.
Provincial governments enjoy large fiscal flexibility due to increased revenues under the National Finance Commission (NFC) award.
The four provincial governments released about Rs1.22 trillion for current expenditures, higher by 28% compared to a year ago. Their development spending amounted to Rs257 billion, up only 4%.
Details showed that against the total revenue of Rs867 billion, the Punjab government spent Rs1.03 trillion, incurring a deficit of Rs160 billion.
Chief Minister Maryam Nawaz’s provincial government spent Rs525 billion alone on current expenditures. There was an alarmingly large statistical discrepancy of Rs378 billion in the provincial budget books, according to the finance ministry’s report.
Sindh government booked a cash surplus of Rs131 billion, Khyber-Pakhtunkhwa recorded a budget surplus of Rs103 billion and Balochistan government generated a surplus of Rs85 billion. But due to Punjab’s deficit of Rs160 billion, the overall provincial cash surplus went down to just Rs160 billion.
Pakistan has accepted about 40 conditions in return for the $7 billion IMF deal. Under the loan programme, the four provincial governments are required to generate a total cash surplus of Rs1.217 trillion in the current fiscal year.
Revenues of provinces totalled Rs1.9 trillion, largely due to their share in the NFC award. Out of this, the federal government transferred Rs1.6 trillion. NFC transfers rose 44% compared to a year ago. Under the NFC award, the provinces receive 57.5% of the federal tax collection.
The federating units also generated Rs213 billion in revenue independently, up Rs38 billion, or 22%. The IMF had set a target of Rs184 billion for the provincial tax collection, which was met.
The Federal Board of Revenue (FBR) missed the condition of collecting Rs10 billion from traders and received just Rs10 million in three months.
The government is facing serious challenges in achieving the tax targets. Authorities have blamed the shortfall on wrong assumptions of inflation, large-scale manufacturing and imports.
The provincial governments did meet another IMF condition of collecting Rs184 billion in taxes during the July-September quarter. They surpassed the target by Rs29 billion, collectively receiving Rs213 billion, according to the finance ministry’s report.
The country recorded a budget surplus of Rs1.7 trillion, or 1.4% of GDP, in the first quarter on the back of a one-off SBP profit of Rs2.5 trillion. The collection of petroleum levy amounted to Rs262 billion.
On the expenditure front, the federal government spent a total of Rs2.5 trillion during the first quarter while current expenditures stood at Rs2.4 trillion.
The federal government paid Rs1.3 trillion in interest cost while defence spending came in at Rs410 billion. Another Rs142 billion was spent on running the civil government and pension payments increased to Rs223 billion.
