Fiscal pact under IMF umbrella inked
Pakistan's central and provincial governments have signed a pact under the International Monetary Fund's (IMF) umbrella to coordinate efforts to end corruption within the federating units and grant commercial banks access to the wealth statements of high-level provincial public officials.
Both conditions are part of the National Fiscal Pact that the federal and the four provincial governments signed under the IMF's mandate. Sindh was the last province to sign the pact, a day after the September 30 deadline
Finance Minister Senator Muhammad Aurangzeb said on Wednesday that all four provinces had signed the National Fiscal Pact, a landmark development that will help align provincial taxation policies with the federal government and abolish agriculture support prices.
The finance minister further stated that the new National Fiscal Pact would improve taxation policies, transfer some fiscal responsibilities to the provinces, and improve governance. However, he maintained that the National Finance Commission, which has constitutional backing, would not be altered.
Under the $7 billion bailout package, the IMF required the federal and provincial governments to sign the National Fiscal Pact by September 30. The Express Tribune had earlier reported all the major conditions that the Centre and four provinces agreed to under the new fiscal pact.
According to a major condition, the provincial Anti-Corruption establishments will coordinate with the newly established Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Authority and other relevant agencies for the implementation of the national AML and CFT strategy. These provincial governments will also coordinate with the Financial Monitoring Unit (FMU), the Federal Board of Revenue (FBR), and the National Accountability Bureau (NAB).
The four provincial finance ministers and the federal finance minister have also agreed that the federal and provincial governments will issue regulations to grant banks access to the wealth statements of high-level provincial public officials serving in grades 17 to 22.
This step is being taken to determine whether the bank balances of these bureaucrats align with the assets disclosed in their wealth statements filed with the FBR.
The federal finance ministry praised the signing of the National Fiscal Pact as a groundbreaking development that provides a common framework for income tax on property, agriculture, and sales tax on services. It also lays the foundation for transferring some fiscal responsibilities to the provinces. However, due to resistance from Sindh, the full objectives of the pact have not been achieved.
Under the pact, provincial governments are no longer allowed to set agriculture support prices. They must also amend their agriculture income tax laws to increase taxes on small farmers to rates equal to the federal personal income tax, and set corporate agriculture income tax rates equal to the federal corporate income tax rate.
Sources said the Sindh government was unwilling to accept the condition regarding the agriculture support price, despite signing the deal.
Another major condition states that the federal government will reduce its footprint in accordance with the 18th Amendment. However, due to Sindh's objections, the final decision will be made by consensus through the Council of Common Interests (CCI) or the National Economic Council (NEC).
According to the signed pact, the federal government, in consultation with the provincial governments, will review the social protection programmes implemented by provincial governments and the Benazir Income Support Programme (BISP). The aim is to identify overlapping programmes and fiscal allocations and take prudent fiscal measures that strengthen and improve the generosity and coverage of social protection.
In response to Sindh's objection, the federal government excluded the BISP from the expenditure-sharing list.
The finance minister stated on Wednesday that discussions with Sindh are ongoing regarding the sharing of expenses for the BISP. For the current fiscal year, the government has allocated Rs592 billion for BISP spending.
Aurangzeb further explained that under the new fiscal pact, provincial governments will take responsibility for projects within their geographical domain.
The finance ministry relaxed the condition of transferring provincial projects funded by the federal government to the provinces, linking any such transfer to the consent of the NEC.
Earlier, speaking at the launch of the Pakistan Economy Dashboard, a digital platform featuring economic statistics since 1973, the finance minister called for "leveraging" Pakistan's improving economic position to achieve lasting macroeconomic stability.
The Dashboard, prepared by the economic advisor wing of the finance ministry, provides summary data of previous fiscal years.
The finance minister said that while Pakistan's economy has stabilised, it is crucial to leverage this position to bring permanence to macroeconomic stability. He said that the latest CPI inflation figures have "surpassed all expectations." "On the back of these numbers, I think it will continue to buttress the economy and take us from stabilisation to a growth path," the finance minister said.
Aurangzeb said that the government had rejected all bids for treasury bills last week, which was "a symbolic and important move to demonstrate that we are no longer a desperate borrower."
Stressing on leveraging macroeconomic stability, Aurangzeb stressed that authorities must ensure "we continue with structural reforms." "It is a defining moment for the country to proceed with full rigor and commitment to these reforms."