Talks with IMF: Provinces in unison oppose change in NFC

Commit to provide Rs286b cash surpluses to Centre

ISLAMABAD: The provinces have unanimously told the International Monetary Fund (IMF) that they would oppose any structural change in the National Finance Commission (NFC) award.

However, they assured the fund of providing Rs286 billion cash surpluses to help the Centre achieve its fiscal targets.

In this regard, the IMF team held a meeting with the four federating units’ officials to get to know their fiscal policies under its bailout programme, government officials told The Express Tribune.

The provincial finance ministers and secretaries attended the meeting held on Friday. Discussions took place on the distribution of resources under the NFC award and provincial budgets.



The officials said the provinces have taken a unanimous position that they would not support any change in the NFC formula. The provincial finance ministers urged the IMF to ask Islamabad improve performance of the Federal Board of Revenue (FBR) instead of blaming the federating units.

Punjab Finance Minister Hashim Jawan Bakht suggested that the provinces should be given a say in formulation of the FBR’s tax policies, said the officials. The provinces showed their resolve to support the federal government even at the expense of stifling their economic growth rates due to savings.

Only Punjab’s economy, which contributes 54% to the total national output, is expected to slow down to 4% to 4.5% due to cut in development budget in this fiscal year. This will also have implications for national economic growth rate that may now slip even below 4%.

According to the 7th NFC Award, the provinces get 57.5% of the federal divisible pool. The award had been agreed in 2010 that expired three years ago but president of Pakistan extends it every year since there is no new award.

The IMF’s view was that the current NFC award is not favouring the Centre whose borrowings to meet its obligations have skyrocketed since then. The 2010 award that transferred 10% additional sources to the provinces had been finalised on the assumption that the FBR would increase its collection by 1% of GDP every year. But it did not happen and the FBR-tax-to-GDP ratio remained almost stagnant.

“The NFC structural framework should not be altered, as it is a consensus decision of all the stakeholders,” said Khyber Pakhtunkhwa Finance Minister Taimur Khan Jhagra while talking to The Express Tribune after the meeting.

Jhagra said the overall fiscal deficit was responsibility of the federal and provincial governments but changing flows of revenues from Centre to provinces and provinces to Centre is not the answer to it.

“The IMF does have a mandate to look at fiscal numbers but it cannot question the constitutional arrangement,” said Jhagra while responding to a question.

The Ministry of Finance has been campaigning to cut about 6% of the divisible pool for meeting expenditures of security and special areas being administered by the Centre.

At least two federating units told the IMF that they would honour their commitments of providing cash surplus to the Finance Ministry, which is very critical for achieving the fiscal consolidation under the IMF programme. The Finance Ministry has budgeted Rs286 billion cash surplus for achieving the revised budget deficit target being agreed with the IMF.

Punjab finance minister is said to have told the IMF that the provincial government would save nearly Rs148 billion out of its budget, which is already reflected in its budget.

There is a debate within the Punjab government about saving a huge chunk and its implication for provincial economic growth rate. The publication, “The Growth and Inequality in Pakistan” by Dr Hafiz Pasha showed that Punjab had a share of 54% in national GDP in 2016-17. The next economy in terms of size is Sindh, with a share of 30%. The K-P and Balochistan have shares of 13% and 3%, respectively.



Punjab’s economy grew 6% in the last year of the Pakistan Muslim League-Nawaz (PML-N) government, which is now expected to slow down to 4% to 4.5% due to projected budgetary savings.

In the last fiscal year, the provincial government had spent Rs411 billion on development but Punjab Chief Minister Usman Buzdar’s government has planned to spend only Rs238 billion in this fiscal year.

“The provinces do not have much cash surpluses due to their socio-development needs but the K-P government remained committed to providing Rs30 billion cash surplus in this fiscal year,” said Jhagra.

He said providing cash surplus is not the permanent solution as there is a need to enhance the FBR collection. He said the provinces should be given representation at the FBR policy board.

The K-P finance minister also underlined the need to improve expenditures management by the federal government, saying it should cut losses of loss making enterprises.