The federal government of Pakistan has entered into agreements with all four provinces, aiming to reclaim fiscal space lost nearly 15 years ago under the 7th National Finance Commission. These agreements mandate a collective fiscal surplus of at least Rs600 billion and prohibit further debt accumulation in key commodity operations, including fertiliser and wheat, until June’s fiscal year’s end.
Achievements and Commitments for Fiscal Year 2024
During the initial quarter of the fiscal year (July-September 2023), the provinces reported a combined modest surplus of Rs51 billion despite Punjab and Khyber Pakhtunkhwa’s overspending. This led to deficits in these provinces, contrasted by surpluses in Sindh and Balochistan. However, intensified efforts under the IMF program in the following quarter (October-December) resulted in a significant surplus of approximately Rs290 billion from the provinces.
The Ministry of Finance has improved fiscal coordination with the provinces through updated Memorandums of Understanding (MOUs), ensuring that budget targets for FY24 are met. Punjab has pledged to reduce its expenditure by Rs115 billion to achieve its surplus goal. At the same time, all provinces have agreed to address longstanding commodity debt issues and prevent further debt accumulation.
Despite these efforts, the IMF has indicated that additional measures are necessary to achieve the primary surplus goal of Rs400 billion for the current fiscal year. It highlighted that while federal spending has been contained, provincial spending has surged, necessitating amendments to the MOUs to ensure adherence to budget plans.
To bolster these fiscal discipline efforts, the government has sought IMF technical assistance for budget preparation and execution, aiming to enhance coordination and reporting with the provinces. This initiative is crucial for strengthening the fiscal framework ahead of the next fiscal year’s budget (2024-25).
Furthermore, the provinces have committed to adopting the e-Pakistan Acquisition and Disposal System (e-PADS) for public procurement, developed with World Bank support, to ensure transparency. This electronic procurement system represents a significant step towards enhancing fiscal management and accountability.
