In an effort to regain fiscal control lost to provinces 15 years ago under the 7th National Finance Commission, the federal government has entered agreements with the four provinces. These agreements aim to achieve a cumulative fiscal surplus of at least Rs600 billion by the end of the current fiscal year in June, emphasizing refraining from creating additional debt in key commodity operations. The Ministry of Finance has informed the International Monetary Fund (IMF) about these collaborative measures to adhere to stringent fiscal discipline.
During the first quarter of the fiscal year (July-September 2023), provinces reported a modest combined surplus of Rs51 billion, with Punjab and Khyber Pakhtunkhwa facing deficits. However, in the following quarter (October-December), the federal government, under the IMF program, secured a substantial surplus of about Rs290 billion from the provinces.
The Ministry of Finance has updated Memorandums of Understanding (MOUs) with provincial governments, ensuring improved fiscal coordination to meet budget targets for FY24. Punjab has committed to reducing its expenditure by Rs115 billion for the remainder of FY24, aligning with the budgeted surplus. Provinces have also agreed to address the decade-long accumulation of commodity debts through time-bound plans for their retirement, refraining from increasing such debts.
Provincial governments have committed to adopting the Government Finance Statistics Manual (GFSM2014) definition of surpluses. The IMF acknowledges the federal government’s efforts but suggests additional measures are needed to ensure the primary surplus goal of Rs400 billion for the current fiscal year.
Provinces have amended MOUs to include federal and provincial revenue, along with total expenditure plans, to stay within budgetary limits. The Punjab government, through a supplemental MOU, aims to restrict spending by Rs115 billion to achieve the committed surplus.
To strengthen budget preparation and execution, the government has sought technical assistance from the IMF, focusing on coordination and fiscal reporting with provinces. The recently completed Climate-Public Investment Management Assessment (C-PIMA) provides an action plan to enhance public investment management for addressing climate challenges.
Furthermore, provinces have embraced the e-Pakistan Acquisition and Disposal System (e-PADS) for electronic procurement, enhancing transparency in public procurement. Launched with World Bank support, e-PADS has completed 341 out of 912 planned procurement contracts since its inception last year.
The federal government is collaborating with provinces to reduce electricity subsidies, particularly on tube wells, targeting subsidies that predominantly benefit large agricultural users.
