In a concerted effort to reclaim fiscal space lost to provinces under the 7th National Finance Commission almost 15 years ago, the federal government of Pakistan has entered into agreements with all four provinces. The goal is to achieve a cumulative fiscal surplus of at least Rs600 billion by the end of the current fiscal year in June and to avoid accumulating further debt in key commodity operations, such as fertilizers, wheat, and other essential food items.
To demonstrate its commitment to stringent fiscal discipline, the Ministry of Finance has reported these developments to the International Monetary Fund (IMF). The initial quarter of the fiscal year saw a modest combined surplus of Rs51 billion from the provinces, with varying performances from each. However, by the following quarter, the federal government, under the IMF program, secured a substantial Rs290 billion surplus from the provinces.
Also Read: IMF warns that Artificial Intelligence Will Affect 40% of Office Jobs
The Ministry of Finance has informed the IMF of improved fiscal coordination with provincial governments through updated Memorandums of Understanding (MOUs). The MOUs outline commitments to meet budget targets for the fiscal year and include measures such as curbing expenditures and addressing the accumulation of commodity debts by provincial food departments.
Furthermore, the provinces have pledged to refrain from increasing commodity debt and have adopted a definition of provincial surpluses according to the Government Finance Statistics Manual (GFSM2014), an IMF reporting template. Despite these efforts, additional measures are deemed necessary to ensure the primary surplus goal of Rs400 billion budgeted for the current fiscal year.
In pursuit of financial transparency and efficiency, the federal government and provinces have embraced an electronic procurement system, e-Pakistan Acquisition and Disposal System (e-PADS), developed with World Bank support. This system aims to enhance transparency in public procurement.
As part of broader economic reforms, the government is also working with provinces to reduce electricity subsidies, particularly those benefiting large agricultural users. Additionally, technical assistance from the IMF has been sought to strengthen budget preparation and execution, improving coordination and fiscal reporting with provinces, with an eye towards the next fiscal year (2024-25). The recently completed Climate-Public Investment Management Assessment (C-PIMA) offers an action plan to fortify public investment management to address climate challenges in the coming years.
