The revenue shortfall in November is bad news. For a start, it means that the government is going to face difficulties meeting its commitments to the IMF. Though the recent review resulted in a staff-level agreement, with final approval by the IMF Board due later in the month, the agreement also contained the provision that there would be a mini-Budget if the Federal Board of Revenue failed to collect as much as it had committed. Secondly, it meant that the economy has not been picking up, because the failure to increase revenue, or rather the failure to increase it as fast as it expected to, implies that the growth the government expected, did not take place. The FBR and IMF may argue about who is responsible for the overestimation of GDP growth, but it does not change the reality that the FBR cannot really squeeze blood out of a brick.
It should be realized that the FBR does not have all that much control over its collection. A lot of the collection is virtually automatic, depending on sales of the particular product. Large-scale manufacturing’s recent increase should translate into increased revenues, but there is a time lag as well as some question marks about how long the increase will last. Going by the figures for exports to North America, not very long. The FBR is supposed to prevent evasion and theft, but there is only so much it can do. Its officials do not have nearly as much ability to influence . taxation as they think. True, there are vast leakages still to be plugged, but the performance of the economy will always be central to the taxation effort.
There are certain implications that become harder to avoid. The first is that the IMF and the government don’t know their economics; especially the IMF, because the solutions it has applied are not working. Then there is the danger that the government will not be able to maintain the primary surplus mandated by the IMF, and which it has been managing so far. Instead of revenue-raising efforts alone, on which it will focus, it needs to look more closely at expenditures, to ensure that it can reduce the revenue it needs to collect. The IMF will almost certainly use these shortfalls as a stick to beat PAkistan with, so it must prepare for the IMF to lsy down even harder conditions.
