Army Budget reduced to meet the demands of IMF deal

Pakistan has reduced armed forces development programme by Rs72 billion or nearly 20% or one-fifth of the allocation made on June 10 in order to meet a significant condition of the International Monetary Fund (IMF) about accomplishing primary budget surplus in the new fiscal year. The allocations are in addition to the regular defense budget. Having a primary budget surplus of Rs153 billion or 0.2% of the national output is one of the main conditions of the IMF for the revival of the bailout package. Finance Minister Miftah Ismail now hopes to secure the staff-level deal before the end of current week.

The original budget allocation on June 10, for armed forces development programme in National Assembly was announced as Rs363 billion. However, during the revised budget it has been cut short to Rs291 billion after its approval from National Assembly, according to Ministry of Finance which has been made public now. It is for the second time in these many years that the armed forces development programme has been reduced due to fiscal constraints and limitations inflicted by the IMF.

According to the budget book, the previous government had allocated Rs340 billion for this purpose but the actual spending has been displayed at Rs270 billion for the last fiscal year. An official of the Ministry of Finance reported that the armed forces development programme had to be reduced to bring down overall expenditures in a shape where the primary budget surplus target of the IMF could be achieved. The government has set the primary budget surplus target at Rs153 billion or 0.2% of GDP on back of Rs750 billion provincial cash surpluses. However, the provincial budgets do not reflect the Rs750 billion savings and the IMF asked the government to adjust the provincial endorsements through memorandum of understandings (MoUs).

The Khyber-Pakhtunkhwa government has linked the signing of the MoU with the federal government’s ability to address the issues of the recent Federally Administered Tribal Areas (FATA). These areas have been merged with the K-P province. K-P’s Finance Minister Taimur Saleem Jhagra met with Ismail to find a way out. “Our objective is not to be obstructive to signing of the MoU and the provincial cabinet has already given authority to the chief minister,” Jhagra said.

The provincial finance minister said to resolve the issues mentioned in the letter sent to the finance ministry and in a meeting with federal finance minister on Tuesday positive step was taken with the federal finance minister. None of the provinces has effectively shown provincial budget surpluses though all the four provinces seem committed to signing of the MoUs, The Punjab government that had earlier given a surplus budget on Monday announced over Rs100 billion electricity subsidies. This has dissolved any overflow left adjacent to presenting other provinces to similar demands from their poor people.

In an interview to a private TV channel, Ismail said that the government on Tuesday gave a “comprehensive reply to the IMF on the draft Memorandum for Economic and Financial Policies and a staff level agreement can be reached within two to eight days”. The IMF had shared the MEFP last Monday and then Ismail had promised to sign the deal within one week but he was unable to sign the deal. Ismail has also informed military about the possible deal with IMF by Thursday. Pakistan will have to agree and implement all the conditions proposed by the IMF after staff level agreement. The chief leading body of the worldwide bank endorses the advance tranche and proclaims finish of the seventh and the eighth surveys of the bailout program.

To satisfy the IMF, the government had to make adjustments in other expenditures with a budget now being Rs9.6 trillion which is higher than proposed on June 10. The stated defense budget has been additionally increased to Rs1.567 trillion – an increase of 14.1% or Rs194 billion over the last year’s original allocation. The defense budget has been increased by another Rs41 billion as compared to June 10.

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The cost of civilian and military pensions has been increased to Rs609 billion which was Rs530 billion three weeks prior. A major condition that still remains outstanding is notifying the Rs3.51 per unit increase in electricity prices from July 1. The government will also have to announce the cabinet’s decision to further impose Rs10 per liter duty on petrol from August 1 to the IMF. The IMF has also set the condition that Pakistan should review its anti-corruption laws. The condition has been imposed after the recent amendments to the accountability law that unsettled IMF. Ismail said the IMF had asked for a diagnosis of the corruption laws in consultation with the international experts.