Pakistan on Wednesday assured the International Monetary Fund (IMF) that it would approve a new action plan in two months aimed at reducing wastage in development spending through a better allocation of resources, slashing the list of ongoing schemes and centralising their approval process.
The 60-point action plan spanning two years has already been mutually endorsed by the IMF and Pakistan but it now requires the stamp of approval from the federal cabinet.
The Ministry of Planning briefed the IMF about the action plan and the steps taken so far. The IMF was assured that the cabinet would approve the plan by the end of December, said sources.
Negotiators also apprised the global lender about plans to separate tax policy from the Federal Board of Revenue (FBR) functions, a move that had been initiated under the Special Investment Facilitation Council (SIFC).
During the seventh day of talks, the IMF took stock of the government’s commitments to implementing the new action plan under the Public Investment Management Assessment and Administrative Reforms of the tax system.
Unlike past practices, these meetings were also attended by interim Finance Minister Dr Shamshad Akhtar. Usually, the finance ministers join only policy-level talks, which are scheduled to begin from Monday.
Pakistan has agreed to bring drastic changes to its public investment policy, approval and implementation framework to bring an end to wastages, which are often the result of ill-conceived politically oriented projects, donor-designed schemes and lack of capacity and funding to implement these schemes.
“PSDP [Public Sector Development Programme] is unaffordable with currently approved projects likely to take a decade and a half to complete before accounting for cost increases,” stated a technical assistance report the IMF prepared after its visit in March.
This year’s technical mission report has identified loopholes in Pakistan’s public investment management and recommended the measures needed to strengthen it.
Despite severe fiscal constraints and a huge backlog of incomplete projects, the report revealed that new projects with a total cost of Rs2.3 trillion were added by the government in the 2022-23 budget.
Pakistan is committed to formalising processes to obtain information on projects funded from sources other than the PSDP and the present aggregate information on the public sector investment programme in the budget expanded the PSDP. It has set the deadlines of December 2023 to June 2024 to achieve these objectives.
A new mechanism will be put in place to report on risks related to state-owned enterprises’ (SOEs) projects including their contingent liabilities.
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The IMF has identified a lack of coordination with provinces on investment. The role of the National Economic Council is effective only to the extent of federally funded PSDP.
However, the SOEs and other federal government entities that fund infrastructure projects from their own revenues have a considerable autonomy and this creates the potential for a lack of coordination in investment plans, according to the technical mission report.
The Public Finance Management Act requires all projects to be technically approved before receiving funds in the budget. However, other selection criteria to guide the allocation of limited budget resources for PSDP projects are not in place.
One of the biggest components of the PSDP – the parliamentarians’ schemes – is not approved through the regular process; rather approvals are discretionary in nature.
Pakistan has committed to the IMF that by the end of December, it will develop a draft internal proposal for selecting projects which will be funded out of the PSDP. Final criteria to select projects for federal funding will be published by mid-2024, according to the action plan.
Similarly, during the first half of next year, Pakistan will conduct a review of technically approved projects and reduce the list of high-priority projects that can be funded from the PSDP. This may result in the dropping of hundreds of schemes.
The IMF report has identified many loopholes in implementation and monitoring systems and recommended improvement in ex-post evaluation and for more active portfolio oversight.
Some mechanisms are in place to ensure alignment between strategic plans, national goals and investment projects that can help achieve them. However, the previously well-established national planning process was interrupted with the failure to finalise the 2018 National Plan, while sector-specific plans provide strong guidance only in some sectors.
The interim finance minister informed the IMF about plans to restructure the FBR. She said that a task force was working to bring structural changes to the taxation system.
The minister is said to have told the IMF that the policy function might be separated from the FBR.
Former prime minister Imran Khan-led cabinet had in 2018 decided to separate the policy and operation functions but the decision was never implemented.
Sources said that there was no convergence between the task force and the FBR on many issues. They said that the restructuring plan had not yet been presented to the PM and the SIFC for endorsement.
Sources added that there was a proposal to set up a new tax policy division for the policy function. There is already the Revenue Division, which has been rendered ineffective, as all its functions are performed by the FBR chairman and its members. The key point of discussion was the role of tax policy division. The question was whether it should be a body that would work for revenue maximisation or set policies with the goal of economic development.
Published in The Express Tribune, November 9th, 2023.
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