IMF urges constitutional amendment for fiscal discipline
Photo: REUTERS
The International Monetary Fund (IMF) has recommended constitutional amendments to curb the federal government’s authority to issue supplementary grants without prior parliamentary approval, alongside advocating for a special audit of grants issued over the past decade.
Government sources disclosed to The Express Tribune that a technical IMF mission proposed a series of measures to fortify Pakistan’s fiscal position and address the unsustainable public debt. These proposals encompass the restructuring of the finance ministry, identified by the IMF as having a weak capacity to plan and execute the budget.
Sources say these preliminary findings were communicated to interim Finance Minister Dr Shamshad Akhtar following the completion of the two-week review of Public Finance Management (PFM) on Monday.
While some of the IMF’s suggestions can be executed by the caretaker government, critical ones, such as constitutional amendments, have been recommended for the next government.
Read IMF denies it plans to ask Pakistan to raise taxes on salaried class
According to sources, the IMF specifically called for an amendment to Article 84 of the Constitution, which empowers the federal government to issue supplementary grants during the financial year without prior approval from the National Assembly. The IMF opposes this mechanism and proposes either abolishing the government’s power to issue supplementary budgets or implementing an upper limit linked to prior parliamentary approval.
For the current fiscal year, the National Assembly approved a federal budget of Rs14.5 trillion, but expenditures may reach around Rs15.5 trillion, necessitating supplementary grants. The finance ministry informed the IMF that the cost of debt servicing, initially approved at Rs7.3 trillion, might escalate to Rs8.5 trillion.
The finance ministry’s spokesperson, Qamar Abbasi, did not respond to inquiries about the IMF’s recommendations on the government’s authority to issue supplementary grants.
The sources said that, during the meeting, the finance ministry informed the IMF that it would not be easy to amend the constitution, which requires a two-third majority in both houses of the Parliament.
The IMF suggested establishing a contingency fund for emergency needs and recommended a special audit by the Auditor General of Pakistan to evaluate the effectiveness of supplementary grants issued over the past decade. The sources revealed that the IMF identified arbitrary and excessive use of authority in issuing supplementary grants, leading to instances where the sum of such grants amounted to nearly 15% of the annual budget sanctioned by the National Assembly.
The IMF also opposed technical supplementary grants, which allocate money from one budget head to another without an additional budgetary burden, undermining the credibility of the budget.
Additionally, the IMF recommended amendments to the Fiscal Responsibility and Debt Limitation Act 2005 to enforce the statutory limit of keeping public debt below 60% of the GDP, a limit consistently violated since 2012, said sources.
The IMF noted significant deviations from planned budgets due to external and domestic issues and an unstable political environment in Pakistan. Implementing the IMF’s findings and recommendations could alleviate Pakistan’s fiscal challenges, according to government sources.
For the current fiscal year, Pakistan has committed to the IMF to achieve a primary budget surplus of 0.4% of the GDP, a goal unchanged during the first review of the $3 billion bailout package.
The IMF also suggested other measures to enhance budget execution, said sources, including issuing combined ceilings for current and development budgets. Presently, the planning ministry and the finance ministry issue separate budget ceilings for development and current expenditures.
The IMF recommended strengthening the Finance Division’s role in assessing budget proposals and improving coordination between the budget and expenditure wings of the finance ministry. Weak coordination among various government departments involved in budget planning and execution was noted, particularly between the external finance wing and the debt office of the finance ministry, which operate independently.
The IMF stressed the need to make the Macro and Fiscal Policy Unit (MFPU) at the finance ministry functional. The budget process in Pakistan was found to be out of sync with good international practices, and the IMF suggested adopting elements of the French model for improvement.
The fund also raised objections to an inefficient dual budgeting system, which the sources said, was contributing to an inflated development spending programme lacking sufficient funds. Issues with Budget Call Circulars were highlighted, as the finance ministry issues them in January without providing clear guidelines, often based on outdated spending ceilings.
HIGHLIGHT:
The sources revealed that the IMF identified arbitrary and excessive use of authority in issuing supplementary grants, leading to instances where the sum of such grants amounted to nearly 15% of the annual budget sanctioned by the National Assembly.
Published in The Express Tribune, December 19th, 2023.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.