Pakistan Should Cut Spending to Withstand Rs. 500 Billion Flood Damages: IMF

The International Monetary Fund (IMF) has accepted the proposal of Rs. 500 billion in budget adjustments to absorb flood-related costs, but remains firm that Pakistan must not abandon its overall fiscal discipline, federal and provincial officials say. As reported by The Tribune, Pakistani authorities sought relief by offsetting that amount against the primary budget surplus target. In response, the IMF is resisting a change in core targets, proposing instead adjustments within the existing fiscal framework. Punjab, hardest hit by the floods, has pledged a Rs. 740 billion cash surplus, but only on condition that the Federal Board of Revenue (FBR) meets its Rs. 14.1 trillion target. Sources say the IMF may allow cuts in the Public Sector Development Programme (PSDP) or use contingency funds to make room. Under discussion are votes to reduce the FBR target by Rs. 170 billion to Rs. 13.96 trillion, adjust non-tax revenues, and relax Punjab’s agricultural tax goal. The IMF also flags a possible Rs. 150 billion provincial overrun stemming from flood expenses. One alternate proposal involves cutting Rs. 300 billion from the PSDP and another Rs. 150 billion from contingency reserves, preserving the primary surplus target. Yet government officials believe Pakistan requires additional fiscal space, not just internal trade-offs. They propose decreasing the surplus target by Rs. 500 billion, or roughly 0.4% of GDP. Current IMF conditions include a Rs. 3.1 trillion primary surplus (2.4% of GDP) and a Rs. 1.464 trillion provincial cash surplus (1.1% of GDP), both tightly bound to FBR performance and provincial contributions. Punjab Information Minister Azma Bukhari reaffirmed the province’s commitment to its Rs. 740 billion target, conditioned on the FBR meeting its goal, and clarified that Punjab has not advised the IMF that it will fall short. However, there are deep concerns over the FBR’s ability to deliver. Even if its target is revised downward, achieving Rs. 13.96 trillion appears unlikely, given that it missed its first-quarter target by around Rs. 198 billion. Punjab’s finances remain vulnerable. Last fiscal year, the province reportedly lost nearly Rs. 500 billion due to FBR shortfalls. Officials may need to reevaluate their development and current budget plans to absorb flood recovery costs. Key macro variables, including inflation, growth, and current account deficits, remain under negotiation. The government proposes 3.5–3.9% growth, but the IMF expects growth may not exceed 3%.