Miftah Ismail warns budget deficit to surge to Rs6.4tr

ISLAMABAD: Highlighting widening twin deficits i.e. budget deficit and current account deficit, the former finance minister Miftah Ismail on Tuesday said that Pakistan required external financing of $9 billion for averting a balance of payment crisis in the current fiscal year.

Tipped to the financial adviser to the new PM, Miftah Ismail said that the budget deficit is projected to go up to Rs6,400 billion, equivalent to 10 per cent of GDP, based on rebased national accounts against the initially envisaged target of Rs4,000 billion while the current account deficit might touch $20 billion mark or 6.5 per cent of GDP during the current fiscal year 2021-22, the second highest in the country’s history after Musharraf era when it had touched 8.1 per cent of GDP in 2007-8.

He made it clear that Pakistan would remain in the IMF programme by making efforts to accomplish three outstanding reviews under $6 billion Extended Fund Facility (EFF) program.“It will be difficult to reduce the price hike on an immediate basis, so the Shehbaz Sharif government provided relief to poor segments of the society. We will negotiate with the IMF for convincing the IMF to get fiscal space. Let me assure all multilateral creditors and bilateral creditors, including China and CPEC, that all agreements done by the PTI-led regime would be honored. All written agreements will be fulfilled,” Miftah Ismail said in his news conference here at his residence along with other party leaders including Musdiq Malik and Mohammad Zubair on Tuesday.

Regarding the yawning external financing requirement related question asked by this scribe, Miftah Ismail replied that Islamabad required $6 billion in financing keeping in view the rising current account deficit till June 2022 to avoid erosion of dwindling foreign currency reserves. He said that the foreign currency reserves were reduced by $5 billion in the last one month. He said that there was a requirement of $3 billion to repay external debt servicing. So the total financing requirement will be standing at $9 billion till June 2022.

Miftah Ismail disclosed that the budget deficit was envisaged at Rs4,090 billion for the current fiscal year, but now the record should be rectified as the latest estimates of the Ministry of Finance suggest that the budget deficit was projected to rise to Rs5,600 billion whereas the previous PTI led government did not include Rs373 billion subsidy, which they earlier claimed was fully financed. With the insertion of supplementary grants of Rs800 billion and payment to SNGPL to the tune of Rs200 billion, the overall budget deficit would surge to Rs6,400 billion, higher by Rs1,600 billion than the envisaged target. He said that there was a budget deficit of Rs6,400 billion in five-year tenure of PML (N) from 2013 to 2018 but the budget deficit would surge to Rs6,400 billion just in one year in 2021-22.

He said that the government placed landmines by doling out Rs373 billion subsidy on POL and electricity prices without the ECC’s approval of this subsidy. There will be an outstanding amount of Rs220 billion for SNGPL and Rs73 billion for GENCOs. He said that the IMF raised objections over the Rs373 billion subsidy provided in the ‘so-called relief’ package. He said that the expenditure was targeted at Rs7,500 billion but now it was projected to go up to Rs 9,500 billion for the current fiscal year.

He said that the import bill was also making new records and stood at $45 billion now and it was projected that it would go up to $75 billion. The trade deficit was projected at $45-50 billion. He said that the current account deficit might go up to $20 billion or 6.5 per cent of GDP, the second-highest in the country’s history after 8.1 per cent of GDP during the Musharraf regime in 2007-8.

He said the exports could fetch $30 billion, registering 24 per cent growth but imports were going to register a growth of 50 per cent. He said that the Public Sector Development Programme (PSDP) was reduced from Rs900 billion to Rs700 billion and so far utilization of funds stood at Rs450 billion. It was projected that utilization of PSDP would be standing at Rs 500 billion. He said that the government would reduce throw forward to make PSDP projects viable.

When asked about an extension in the tenure of Governor SBP Dr Reza Baqir, he said that his tenure would be complete by early next month and any extension was not yet discussed with PM Shehbaz Sharif. It will be the discretion of the PM to grant an extension in the tenure of Governor SBP. The Governor SBP’s tenure is ending on May 4, 2022, and under the newly-enacted SBP Amendment Law 2022 approved by the Parliament, he can be granted a second term of five years.

When asked about the collection of petroleum levy which was one of the major conditions of the IMF programme, he replied that the government did not make up its mind about increasing the POL prices as they had not even received work done by OGRA on this subject.