Provincial budgets dash federal govt's hopes to squeeze budget deficit in FY23

• Provinces cummulativley posted a teensy budget surplus that is not even remotely close to Rs800bn envisaged by budget-makers.
• IMF may come up with demands of increasing the FBR's tax collection target from Rs7.004tr to Rs7.100tr.
• Three provinces have so far presented their budgets for 2022-23 and generated a total surplus of Rs91bn.

ISLAMABAD: Even before the start of the next fiscal year, the budgetary projections have broken apart as the provinces cumulatively posted a teensy budget surplus that is not even remotely close to Rs800 billion envisaged by the budget-makers, The News reported.

This has given a huge blow to the government’s hopes of bringing the next fiscal’s budget deficit to 4.9% of the gross domestic product (GDP) from the outgoing year’s 8.6%.

Keeping in view such slippages, the International Monetary Fund (IMF) may come up with demands of increasing the Federal Board of Revenue’s (FBR) tax collection target from Rs7.004 trillion to Rs7.100 trillion or even Rs7.200 trillion for the next fiscal year.

The discussions on the revenue side are underway with the IMF so both the FBR’s tax collection target and non-tax revenue target can be altered before the approval of the budget from the National Assembly. The changes in petroleum levy are also on cards.

Read more: Things will only get more difficult after budget 2022-23

There is an interesting footnote on the budget document for 2022-23 which reads “figures are provisional. Final figures will be provided during the budget session”.

Now three provinces have so far presented their budgets for 2022-23 and generated a total surplus of Rs91 billion for the next fiscal year.

This figure depends upon the basis of this assumption that the Khyber Pakhtunkhwa’s budget was in the balance but its Minister for Finance Taimur Khan Jhagra told The News that the budget could be in surplus provided the federal government transferred their full share on account of Net Hydel Profits. “If the federal government did not provide our due share, then it could be turned into a deficit,” Jhagra said.

Punjab posted a surplus budget of Rs125 billion for the next fiscal year 2022-23, while Sindh had a deficit of Rs34 billion so the net surplus stands at Rs91 billion.

KP’s budget could be assumed to be balanced at the moment. Balochistan has not yet presented its budget but the province is unlikely to generate a big surplus as desired by the federal government.

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The surplus generated by the provinces becomes increasingly important in the context of ongoing Pakistan and the IMF parleys for striking a staff-level agreement.

Dr Khaqan Najeeb, the former advisor at the Ministry of Finance, said two points were important here.

“One, the sanctity of the budget numbers is everything. An Rs709 billion shortfall means an increased deficit of almost 1% in FY23. Secondly in essence this reliance on surplus is like sweeping the problem under the rug,” Dr Najeeb said.

“The bottom line is that National Finance Commission (NFC) is unworkable as far as economic stability is concerned. It is important for the country to move to the 8th NFC award. At the same time, we should cut the federal government's size in a big way and devolve subjects like health and education to provinces.”

Read more: Pakistan budget needs additional measures to meet goals, says IMF

He hoped Pakistan would be able to negotiate this hole of Rs709 billion with the IMF. “There are ways to handle this with the IMF as we have done previously,” Dr Najeeb concluded.