Reopening talks on the National Finance Commission (NFC) award, the International Monetary Fund (IMF) urged Pakistan on Thursday in an effort to resolve the continuous disparity in the allocation of fiscal resources between the federal and provincial governments.
Nathan Porter, the IMF Mission Chief to Pakistan, expressed concerns about the allocation of resources and duties during the first round of talks for a $1.1 billion loan tranche, highlighting the need for a more equal structure. Muhammad Aurangzeb, Pakistan’s finance minister, was in attendance for these discussions.
Government representatives revealed that the IMF highlighted the necessity for a reevaluation of the NFC award, pointing to differences in the distribution of resources between national and local government bodies.
Under the 2010 model, provinces’ allocation of total federal revenues increased from 47.5% to 57.5% without any corresponding transfer of extra duties. As a result, there is now a persistent budgetary deficit and a growing national debt.
The provincial shares cannot be lowered without a constitutional modification and the approval of a new formula by all of the provinces, the Pakistani government told the IMF.
There hasn’t been any agreement to review the 2010 NFC award because it was agreed upon for a five-year term.
Gaining support from the provinces for changes is a difficult undertaking for the coalition government, especially in a politically varied environment.
Even while it has the two-thirds majority needed to modify the constitution, it is still unclear whether all four province administrations would agree, since groups like the Pakistan Peoples Party (PPP) are ardent supporters of the NFC prize. The Pakistan Tehreek-e-Insaf (PTI) is in charge of the Khyber-Pakhtunkhwa government.
With limited success, the Special Investment Facilitation Council (SIFC) has also been attempting to transfer some duties to the provinces.
According to the sources, the government has already fulfilled the requirements for the most recent evaluation of the $3 billion agreement, thus the IMF’s demand for resource redistribution is for the new program.
The IMF also brought up the subject of province governments’ excessive expenditure, which might jeopardize the main surplus goal of Rs. 400 billion for this fiscal year. The Punjab Chief Secretary promised to update the IMF on the budgetary trends and the remedial actions implemented to address the excessive spending.
The enormous cost of debt payment is the main reason why the federal government’s spending has continued to spiral out of control even if it has succeeded in reaching the primary surplus objective. Thus, even though the province governments generated a cash surplus of Rs432 billion, the total budget deficit for the first seven months (July-January) of this fiscal year remained at Rs2.7 trillion.
This fiscal year’s first quarter saw a 57% rise in provincial current spending and a 61% increase in development investment. In accordance with the agreed cash surplus, the provincial governments subsequently modified the memorandums of understanding (MoUs) they had signed with the federal government to include the expected federal revenue, yearly province revenue, and overall expenditure plans.
In order to meet the commitment made in the Memorandum of Understanding (MoU) linked with this budget, the Punjab provincial government has agreed to limit its spending by Rs115 billion for the remaining portion of this fiscal year.
Separately, the IMF delegation met with Musadik Malik, the Minister of Energy. Nathan Porter recommended that the government continue its price-correction efforts by promptly adjusting tariffs in accordance with monthly, quarterly, and yearly base tariff modifications. The subject of Power Purchase Agreements that are almost up for expiration between the power producing businesses and the IMF was also brought up.
Pakistan had satisfied all structural benchmarks, qualitative performance criteria, and indicative objectives for the successful completion of the IMF assessment, according to a statement made by the Ministry of Finance one day earlier. According to the ministry, this will be the last review of the Stand-By Arrangement, and an agreement at the personnel level will follow.
The second review of the Stand-By Arrangement with the IMF is slated to take place in Islamabad from March 14–18, 2024, according to the finance ministry. The last tranche of $1.1 billion will be paid out if staff-level consensus is obtained and the IMF executive board gives its approval, the statement continued.
An IMF mission visited Muhammad Aurangzeb at the Ministry of Finance, according to an official Ministry of Finance release. According to the ministry, the Finance Minister welcomed the team and reaffirmed the government’s commitment to collaborating with the IMF on the reform agenda for Pakistan’s economic development and stability.
According to the finance ministry, talks included the macroeconomic indicators as a whole, the government’s initiatives on structural reforms, fiscal consolidation, energy sector viability, and SOE governance.
During their discussion with the minister of energy, the IMF brought up the subject of what would happen to the power distribution businesses’ privatization and the farm tube well subsidies.
According to Minister of Privatization Abdul Aleem Khan, 15 to 20 institutions need to be privatized right now given the current state of the economy on Thursday.
He continued by saying that loss-making organizations are like termites to the economy since they eat away at the national exchequer and capital every year with no sign of an impending cure or remedy.
Abdul Aleem Khan brought attention to the fact that the PIA deficit during the last five years is Rs 500 billion, a figure that is not justified. He emphasized that the decision to privatize loss-making institutions, such as Steel Mills, is crucial to the future of the nation’s economy and is not only a matter of persuading others.
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