ISLAMABAD:
The International Monetary Fund (IMF) does not foresee any major setback to Pakistan’s economic growth or revenue collection this fiscal year due to the recent floods. Except for Punjab, provinces have also not reported significant economic losses, minimizing the chances of a downward revision in targets.
According to government sources, Pakistani authorities have assessed flood-related losses in three rivers, but the evaluation of destroyed or damaged infrastructure in Punjab is still ongoing.
Government sources said that an IMF delegation shared its views about the economic impacts of the floods during a kick-off meeting with Finance Minister Muhammad Aurangzeb. The governments of Balochistan, Sindh and Khyber-Pakhtunkhwa (K-P) shared their initial assessments of the flood losses with the IMF team during separate meetings.
The sources said that during the kick-off meeting, the IMF team observed that based on initial input there were no significant economic losses. However, the IMF said that it would wait for the damage assessment report, the sources added.
The global lender also saw no impact of the floods on the tax revenues. It underscored that the Federal Board of Revenue (FBR) should share the visible outcome of the transformation plan. Prime Minister Shehbaz Sharif had approved the transformation plan last year to revitalise the tax machinery and also gave over Rs55 billion for various initiatives under the plan.
The IMF’s observations about the impact of the floods came on the heel of the prime minister’s request to the IMF managing director to factor in the impacts of the floods during the review meetings. The IMF was apprised that the government could meet the flood-related spending from the contingency pool and it might not need additional resources, said the sources.
Pakistan-IMF review talks began on September 25, which are scheduled to continue until October 8. The successful culmination of these talks would pave the way for the release of two tranches, totalling over $1.2 billion under two different loan programmes.
Also, the sources said, Pakistan’s internal assessment was that there would not be any major impact of the floods on the economic growth. The government has set a 4.2% growth target and it still expects to achieve from 3.7% to 4%, the sources added.
The total economic losses are estimated by the Planning Commission at around Rs360 billion or 0.3% of the size of the economy. The commission’s assessment was that the GDP growth may still remain around 4%.
One of the reasons for not estimating major losses to the crops was that the sowing of rice and sugarcane took place more than the area initially estimated. This would offset the impact of loss of the crops, they added.
The current account deficit would also not increase beyond the estimated figure, as no additional need for imports is projected because of floods, the sources added. The Pakistani authorities also do not see any major increase in imports. However, the IMF has not yet shared its projection of the economic growth, imports and current account deficit.
The sources said that the IMF delegation raised the issue of the delay in publication of the Governance and Corruption Diagnosis Assessment report. The authorities assured the global lender that the government would release the report within this week.
The report points out numerous shortcomings in Pakistan’s judicial, administrative and corporate structure, which contributed to poor governance in every important sphere of life. The IMF has also given over a dozen recommendations to ensure rule of law and the integrity of the judiciary.
During its meetings with three provinces, the IMF pointed out low spending on health and education in the last fiscal year. The K-P government said that low spending on health was because of the fact that many posts of doctors could not be filled due to the slow hiring process.
The IMF inquired whether the provinces would be able to meet the additional spending on the flood-related rehabilitation. The sources said that the provincial governments did not indicate the need for any additional resources due to limited impact.
However, the position of the Punjab government will be important in this regard, which plans to provide a comprehensive rehabilitation package to the affected people. The province is the worst-affected by the floods and its meeting with the IMF will take place this week.
The governments of K-P and Sindh shared their initial assessments. According to the authorities, Sindh estimated that the economic losses may remain in the range of Rs40 billion to Rs50 billion. The k-p government told the IMF that losses might be in the range of Rs30 billion.
The FBR remains the weakest link in the chain. The tax authorities are struggling to achieve this quarter’s Rs3.083 trillion target. They needed over Rs500 billion on September 30 (today) – the end of the first quarter of the current fiscal year – to achieve the target.
The filing of the income tax return also stands around 3.2 million as against the total 7.7 million returns filed for the tax year 2024. The FBR has also extended the date for import duty and tax-free sugar by two months to November. Earlier, it had notified that the sugar can be imported tax-free till the September 30.
The FBR also granted a further two-month extension to traders in real-time electronic transmission of sales tax receipts to the computers of the FBR. It was the second extension, which is tantamount to accepting the impracticality of the earlier deadlines.
