The federal government has signed agreements with the four provinces in order to regain some fiscal space lost under the 7th National Finance Commission almost 15 years ago. The goal is to deliver a cumulative fiscal surplus of at least Rs600 billion and refrain from creating further debt in operations of key commodities until the close of the fiscal year in June. The Ministry of Finance has reported these efforts to the International Monetary Fund (IMF) to highlight the collaborative work to adhere to strict fiscal discipline.
Initially, the first fiscal quarter witnessed a modest combined surplus, with Punjab and Khyber Pakhtunkhwa actually overspending instead of showing fiscal restraint. Sindh and Balochistan, however, reported surpluses. Over the next quarter, the federal government was able to secure a surplus of about Rs290 billion from the provinces through the IMF program.
The Ministry of Finance has reported to the IMF that it has improved fiscal coordination with the provincial governments through updated MOUs, ensuring budget targets will be met this fiscal year. The provinces have committed to curtailing their expenditure, rectifying the accumulation of commodity debts, and refraining from increasing their commodity debt.
The IMF has noted that while the federal government has contained spending, provincial current spending has increased year on year. Additional measures are needed to ensure the primary surplus goal for the current fiscal year. The provinces have amended their MOUs with the federal government to include the estimated federal revenue, annual provincial revenue, and total expenditure plans.
As part of the effort, the government has requested technical assistance from the IMF to strengthen budget preparation and execution and improve coordination and fiscal reporting with the provinces. The recently completed Climate-Public Investment Management Assessment also provides an action plan to strengthen public investment management to tackle climate challenges in the future. Additionally, the provinces have signed up to a system of electronic procurement to enhance transparency in all public procurement.
The federal government is also working with the provinces to reduce electricity subsidies, including on tube wells, as it considers these subsidies primarily benefiting large agricultural users.