WHAT was anticipated has come to pass. Since the government has not been able to keep fiscal deficit within limits, IMF wants Pakistan to cut its overall development budget by 27 per cent to make up for revenue shortfall during the current fiscal year. As part of the IMF programme, the government has set a limit on the country's overall fiscal deficit at 4.3pc of GDP, including 0.3pc expenses for military operations against terrorists in the tribal region and resettlement of temporary displaced persons. Further, to facilitate completion of ninth quarterly review and secure disbursement of $500m tranche in December 2015, the government had confirmed to the IMF that it had missed budget deficit target in the first quarter of 2015-16 but promised to "remain committed to sustained fiscal consolidation". In order to bolster macroeconomic stability and set the stage for sustainable and inclusive growth, the government had assured the IMF to lower the budget deficit to 4.3pc of GDP in the ongoing fiscal year and to 3.5pc by the end of the IMF programme in 2016-17. This was to be achieved mainly through revenue mobilisation and expenditure rationalization.
The strategy was aimed at creating fiscal space for increased spending on infrastructure, education, healthcare, and targeted social assistance to protect the most vulnerable segments of society. Towards that end, the government had also reported to the IMF that provincial governments had given in writing to contain their expenditures and strive to achieve their contribution to fiscal consolidation. To this end, provincial finance secretaries agreed in writing to increase budget surpluses consistent with the programme. The finance ministry committed to intensifying interaction with provincial authorities at a higher level to arrive at a mechanism to strengthen the provinces' fiscal commitment for 2015-16.
Among other things, It was decided to hold quarterly meetings among the federal and provincial finance secretaries to review fiscal performance and coordinate spending priorities to correct any slippages in a timely manner. Moreover, the government planned to prepare contingency measures as needed and reduce expenditure allocations in the first nine months of the year compared to the budget to avoid any deviation from the IMF programme target. The government also promised that additional budgetary spending as result of the reclassification of some non-plan loans (0.1pc of GDP) will be made through re-allocation of existing capital expenditure plans. The government further committed to continue working towards reducing energy subsidies to 0.4pc of GDP in 2015-16, from 0.8pc in 2014-15. To protect against a potential negative outcome of legal challenges to electricity surcharges, the government was to take mitigating measures as necessary.
However, things did not turn out as planned. There were slippages all across the board as a result of which revenue fell short of the target and fiscal deficit could not be contained. To meet the situation, the IMF now wants the government to curtail development expenditure. Specifically, it expects the government to limit the development programme by 26.56pc or at Rs1.111 trillion against Rs1.513tr approved by parliament and four provincial assemblies in June 2015. For achieving this target, the Fund has estimated that the federal government will need to limit Public Sector Development Programme (PSDP) expenditure at Rs611bn, down 13pc, against Rs700bn as originally planned. On the other hand, the cumulative annual development plans of the four provinces would be reduced to Rs500bn, down 38.5pc against Rs813bn announced by the four provincial assemblies. A pertinent question in this regard is: why does IMF want to cut development expenditure, and not non-development expenses? There are many unnecessary administrative expenses and a lot of waste and leakage which can be eliminated. This anti-development approach of IMF has made it unpopular in many countries.