According to a Business Recorder exclusive, the Federal Finance Ministry has acknowledged to the International Monetary Fund (IMF) that the government’s privatisation plan has experienced delays which would lower the number of planned transactions in the next 12 months.
This would have far-reaching implications on the ability of the government to meet its agreed budget deficit target for the current as well as the forthcoming fiscal year. The question is how will the government proceed to pacify the Fund’s concerns with respect to meeting its quantitative targets to ensure the release of the remaining two tranches under the 6.64 billion dollar Extended Fund Facility (EFF) – a programme scheduled to end by September this year?
If past precedence is anything to go by, then the government would raise taxes further. In this context, it is worth mentioning that the Finance Minister during a pre-budget seminar announced that the super tax, levied at the rate of 5 percent on those with income of over 50 crore rupees per annum, is likely to continue in the next fiscal year as well. But this is a relatively small amount in terms of total revenue collected by the government. So what would be the major source of revenue for the government to meet the current as well as the forthcoming fiscal year’s targets?
It is relevant to note that the incumbent Finance Minister like his predecessors has relied on mini-budgets to meet the revenue projected in the budget prompting economists to loudly proclaim it unrealistic in order to meet the IMF quantitative macroeconomic targets. The mini-budget passed on the last day of November 2015 raised customs duties across the broad by one percent (making it a total of 3 percent) as well as regulatory duties on hundreds of products which negatively impacted on lower middle to middle income earners. Or in other words, during an ongoing Fund programme any overstatement of revenue collection in the budget is paid for by the common man and this year budget overstated revenue by 40 billion rupees which necessitated the passage of the mini-budget.
In addition, in marked contrast to the PPP-led coalition government, the first Letter of Intent submitted by the government to the Fund board, a prerequisite for approval of any programme, agreed to develop and approve public sector enterprises (PSEs) reform strategy for 30 entities out of 65 approved for privatisation by the Council of Common Interests (CCI). The government budgeted 198 billion rupees as revenue from privatisation in 2014-15 but revised it massively downward to 17.7 billion rupees at the end of the year. In the current year 50 billion rupees have been budgeted under this head and it is unlikely that the government would even be able to generate the same amount as last year.
This view is strengthened by the Privatisation Commission’s website noting 24th March 2015 (last fiscal year) as the very last decision taken by the Board in which it approved Heavy Electrical Complex (HEC) bid price. Incidentally, the Senate Finance committee chaired by Salim Mandviwala has suggested the HEC case be referred to the National Accountability Bureau. A Business Recorder exclusive that has not been denied by the government referred to a decision taken by the Prime Minister to stop all privatisation – a decision which implies the loss of 1.6 billion rupees that have been spent on hiring financial advisors. The question then is, from where would the 50 billion rupees shortfall budgeted under privatisation be met?
The government, again like its predecessors, has slashed development expenditure instead of current expenditure to meet the targets agreed with the Fund – either directly from the budgeted federal public sector development programme or indirectly from the provincial budgets through pressurising the provinces to generate a surplus to enable the federal government to meet its budgeted deficit. In the current fiscal year the provincial surplus target is a whopping 297 billion rupees, an amount which compromises the provincial capacity to meet the social sector development needs which were devolved after the passage of the 18th Amendment.
Source: Business Recorder