ISLAMABAD: Amid the country’s growing security expenses, Pakistan has asked the International Monetary Fund (IMF) to relax its key condition of restricting the next fiscal year’s budget deficit to Rs1.25 trillion.

During a policy-level dialogue with an IMF team in Dubai, Pakistan sought additional space to incur expenditures of around Rs160 billion or roughly half percentage points of the GDP, finance ministry officials told The Banker Pakistan.

The space has been sought in view of the ongoing military operations and for initiating a 10,000-strong special security force for the protection of Chinese workers in Pakistan for the China-Pakistan Economic Corridor (CPEC), said the officials. The government has also requested the global lender to treat the spending on Operation Zarb-e-Azb as a one-off expense.

“Pakistan has requested the IMF to treat the security-related expenditures as a special one-off item,” confirmed Rana Assad Amin, the finance ministry spokesperson.

Sources said that if the IMF accepted Pakistan’s demand, the budget deficit for the 2015-16 fiscal could come to be around 4.4% of the GDP or over Rs1.4 trillion as against IMF’s condition to bring it down to 3.9% of the GDP or Rs1.25 trillion.

Last month, Pakistan military’s media wing, the ISPR, announced that a special security division, comprising army battalions and Civil Armed Forces wings, was being raised as a dedicated force for CPEC projects.

In Dubai, talks were held to review the performance of Pakistan’s economy in the third quarter (January-March) and for agreement on the next financial year’s fiscal framework. Finance Minister Ishaq Dar led Pakistan’s delegation while the IMF team was led by Harald Finger, the fund’s Washington-based Mission Chief to Pakistan. Both the sides held detailed deliberations for IMF’s 7th review, according to an official handout.

The finance ministry sources, however, said some issues, particularly related to the last quarter (April-June) of the current fiscal year, and broader targets for the next fiscal year needed final resolution.

“We are still discussing, and plan to continue on Monday in Islamabad,” said Tokhir Mirzoev, IMF’s country representative to Islamabad. He said both sides were expected to conclude talks on Monday. Both sides were supposed to conclude talks on Saturday aimed at paving the way for the release of the 8th loan tranche of over $500 million for Pakistan.

The outcome of Pak-IMF talks will determine whether or not the government continues its policy of fiscal consolidation by cutting down subsidies and raising taxes in its third year as well.

Sources said the IMF and Pakistan agreed to further lower the three-time revised, Rs2.691 trillion tax target, as despite five mini-budgets FBR had failed to achieve the target. In the current fiscal year, the government has so far imposed Rs360 billion in additional taxes – the highest figure in any single year.

They said the FBR’s failure became the biggest obstacle in successful culmination of talks. Due to the debacle, the outgoing fiscal year’s budget deficit target of 4.9% could not be achieved and the government would close the year at around 5.4% of the GDP.

According to the original IMF plan, the government was supposed to bring down the deficit by another 0.9% of the GDP by the end of 2015-16 fiscal from the 4.9% level determined for the current year.

The sources said that on the back of five mini-budgets and cutting down the development spending, the government had achieved its January-March budget deficit target, but the IMF was sceptical that this trend would not continue. The IMF has also asked Pakistan to take upfront measures to restrict its circular debt to Rs220 billion and book the additional circular debt onto the budget.

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