ISLAMABAD: Pakistan and the International Monetary Fund (IMF) are moving towards making significant adjustments to the budgetary targets for the current fiscal year. This comes as a direct consequence of the recent flash floods, which are now expected to cause a substantial downward revision in the GDP growth forecast.
Initially, the devastation caused by the floods was underestimated. However, a Rapid Need Assessment (RNA) conducted by the provinces now estimates the total losses across all four provinces to be around Rs650 billion. Officials warn that this figure is likely to increase further as international donors finalize their own assessments.
Macroeconomic Framework to Be Adjusted
To unlock the staff-level agreement under the $7 billion Extended Fund Facility (EFF) and the Resilience Sustainability Facility (RSF), Pakistan and the visiting IMF mission are finalizing a revised budgetary framework.
The revisions are expected to impact key financial targets:
- GDP Growth: The government’s initial growth rate target of 4.2% is set to be revised downward. Initial assessments suggested a drop to 3.9%, but the current evaluation indicates that the floods may have evaporated 0.6% to 1% of the targeted GDP growth.
- FBR Tax Collection: The Federal Board of Revenue’s (FBR) tax collection target will be revised downward from Rs14.13 trillion to Rs14.001 trillion. While the revision may be marginal, it will affect the Rs1,465 billion revenue surplus projected by the provinces for the year.
- Non-Tax Revenue: The target for non-tax revenue is also expected to be slashed.
Expenditure Adjustments and PSDP Slowdown
On the expenditure side, the federal government will also have to make adjustments to keep the fiscal deficit and primary surplus within the agreed targets.
- The government is likely to prefer not to publicly slash the Public Sector Development Programme (PSDP), which has a funding of Rs1 trillion.
- Instead, it may opt to slow down the releases of PSDP funding during the first half (July-December) of the fiscal year. This tactic will help demonstrate that the primary surplus is being maintained within the envisaged target of 2.4% of GDP.
- Some internal adjustments in PSDP projects have already been made, such as sparing Rs20 billion from FBR’s digitisation programme to be utilized towards FBR-related development projects.
Top official sources confirmed that while the provincial RNA estimates losses at Rs650 billion, a consortium of international donors—including the World Bank, Asian Development Bank, European Union, and United Nations Development Programme—has yet to validate these figures, suggesting the final assessment could reveal higher losses.
