ISLAMABAD: The fiscal deficit declined by 36 per cent in the first quarter of the ongoing fiscal year as revenue increase and expenditure cuts took root under the aegis of an IMF programme. Cutting the fiscal deficit is at the core of the government’s commitment to the fund.

Data released showed that fiscal deficit, which is the difference between revenues and expenditures of the federal government, came in at Rs478 billion in July-September FY19 from Rs738bn over the corresponding period last year.

The data was released by Adviser to the Prime Minister on Finance Dr Hafeez Shaikh on Saturday during a crowded press conference in Islamabad, where FBR chairman Shabbar Zaidi was seated next to him. “The fiscal and trade deficits are under complete control,” the adviser said, adding both indicators have shown contractions of over 35pc in the first quarter.

In last year (FY 2018-19), the fiscal deficit was recorded at 8.9pc of GDP, though for the first quarter of the current fiscal year data is not available as a proportion of GDP.

Dr Shaikh said that trade deficit had also declined significantly by 35pc in the same period.

No going back on CNIC condition for taxes, says FBR chairman

The adviser said that improvement in the fiscal situation is due to no supplementary grants being granted during the period under review.

One of the major developments highlighted by the adviser is a robust growth in non-tax revenue which grew by 140pc year-on-year to Rs406bn in the first quarter. His projection is that this figure will touch Rs1.6 trillion by the end of June 2020 as compared to the target of Rs1.2tr.

Giving the breakdown of these projections, the adviser said that he is expecting an additional Rs200bn in profit of State Bank of Pakistan. In the first quarter, the SBP profits jumped to Rs185bn this year from Rs51bn recorded over the same period last year.

Profit of the Pakistan Telecommunication Authority (PTA) edged up to Rs70bn in the first quarter from Rs6bn recorded last year. “We are expecting an additional amount of Rs338bn in the next three quarters” from the PTA, Dr Shaikh said.

The government projected to raise an amount of Rs300bn from the sale of two Liquefied Natural Gas (LNG)-fired power plants, another Rs120bn from dividend and interest of public sector enterprises and Rs250bn from petroleum development levy.

Under the IMF programme, the main conditionality is to meet the primary deficit target. The primary balance of a government’s budget is the difference between revenues and expenditures after removing interest payments.

For the first quarter the primary deficit is projected at Rs102bn. But the ministry of finance claims to have shown a primary surplus of around Rs200bn in the first quarter, which should smooth the way through the first IMF review scheduled for end of this month.

The adviser claimed stability in the exchange rate was achieved in the first quarter. He said billions of dollars were wasted to keep the exchange rate artificially stable in previous years. “We have introduced market-based exchange rate,” he said, adding not only is the exchange rate stable but the country’s foreign exchange reserves also increased.

As a result of these measures, he said the net portfolio investment has increased to $340m. This growth, he said, was seen after a gap of three years.

The adviser said that overseas employment increased to 373,000 during the period from January to August 2019 from 150,000 people who went abroad to seek jobs during the same period last year.

“We are expecting a growth in remittances as well,” he said, though remittances thus far have shown a slight decline from last year.

Dr Shaikh said the investors’ confidence had also been restored in the stock market, as it had shown 22pc growth in the past three months as the index had reached the 34,000 points level from 28,000.

On the issue of export proceeds, the adviser said that exports have also started growth during the current fiscal year after a gap of five years.

Answering a question, the adviser said a comprehensive policy will be announced for small and medium enterprises sector in the next couple of days. Under the policy, ease of doing business is the focus along with credit facility for the sector.

On the issue of the Financial Action Task Force (FATF), Dr Shaikh said the government is taking all measures to stop the money laundering. “We have to take more measures for full compliance of the FATF points,” he said, adding Pakistan has already been compliant in 20 out of 27 conditions. “We are expecting that with all these measures Pakistan will come out of grey list,” the adviser said.

FBR chief

On the issue of traders’ strike, FBR chairman Shabbar Zaidi said there is no deadlock with the traders and he is expecting to resolve the issue shortly. “We have already held 20 to 30 meetings with the traders so far,” he said.

He said he is expecting to reach an understanding with the traders who want turnover-based tax scheme while the FBR had proposed fixed tax on the basis of area. “We have no issue on this but it needs to be resolved mutually with traders,” he said.

The FBR chairman, however, cleared that he will not go back on the condition of CNIC required on purchases and selling of goods. “We will talk to traders on the CNIC to convince them,” he said.

On the issue of data from the UAE, Mr Zaidi said that he was expecting a positive outcome of the data received regarding Pakistanis having residence by investment. He said Pakistan will also get data on Iqama — a work permit used for avoiding taxes.

Published in Dawn, October 13th, 2019