PPP objects to IMF’s NFC demand

ISLAMABAD:

 

The Pakistan Peoples Party (PPP) on Friday objected to the International Monetary Fund’s (IMF) demand that Pakistan should revisit the National Finance Commission (NFC) formula, wondering why the global lender would push the Center to encroach on the provincial share.

The PPP has raised concerns just a day after the IMF called upon Pakistan to reopen discussions on the NFC award to address the ongoing imbalance in the distribution of fiscal resources between federal and provincial governments.

IMF Mission Chief to Pakistan, Nathan Porter, raised concerns over the distribution of resources and responsibilities and underscored the need for a more equitable arrangement with newly-appointed Finance Minister Muhammad Aurangzeb during Pak-IMF talks for a $1.1 billion loan tranche.

PPP Vice President Senator Sherry Rehman, while reacting to the IMF’s demand has raised question regarding IMF’s involvement in Pakistan’s resource allocation formula.

Senator Rehman while questioning the IMF’s alleged role in Pakistan’s resource allocation stressed that there is no indication of the global money lender seeking to interfere in Pakistan’s constitutionally agreed frame of resource allocation.

“There is no indication that the IMF is proactively seeking to meddle in Pakistan’s constitutionally agreed resource allocation frame,” Senator Rehman said, adding “Why would the IMF want to put itself in the middle of changing the NFC formula of Pakistan?”

Instead of eying at provincial share, Senator Rehman reminded that it seems it is the federal structure that cannot collect taxes, which incidentally the provinces are doing far better than the center. Rather than further encroaching on provincial shares, she said, the federal government should worry about improving tax collection through the Federal Board of Revenue (FBR).

“Since the 7th NFC Award, FBR taxes have remained stagnant in the range of 9% of the GDP, whereas provincial taxes have increased from 0.3% to over 1% of the GDP,” Rehman pointed out.

Read IMF asks Pakistan to revisit NFC award

Aside from increasing the tax net, she added, the provinces had also been surrendering a large surplus to the federal government over the last two years.

“In the larger national interest, so far the provinces have also not raised an issue on the federal government appropriating all taxes on petroleum through the petroleum levy rather than sharing these revenues if they were collected through the GST mechanism,” she said.

The current formula, established in 2010, resulted in provincial shares increasing from 47.5% to 57.5% of total federal taxes, without a commensurate transfer of additional responsibilities. This has led to a sustained fiscal imbalance and a rise in public debt.

Before the PPP’s reaction, the Pakistani authorities have informed the IMF that the provincial shares cannot be reduced without bringing a constitutional amendment and making all the provinces agree to a new formula.

The 2010 NFC award had been agreed for a period of five years but since then there has not been any consensus to revisit it. Addressing the challenge of garnering provincial support for reforms, particularly within a politically diverse landscape, presents a formidable task for the coalition government.

Despite possessing a two-thirds majority necessary for constitutional amendments, securing agreement from all four provincial governments remains uncertain, with parties like PPP advocating strongly for the NFC award and the Khyber-Pakhtunkhwa government being controlled by the Pakistan Tehreek-e-Insaf (PTI). As expected, the PPP has already showed concerns on IMF demand.