Shehbaz forms panel to oversee fiscal pact

ISLAMABAD:

Prime Minister Shehbaz Sharif has constituted a high-level political committee to oversee the implementation of the National Fiscal Pact. The committee will also work toward building consensus on sharing debt burden between the federation and provinces, and coordinate the development of critical water infrastructure amid Indian aggression.

Deputy Prime Minister Ishaq Dar of the Pakistan Muslim League-Nawaz (PML-N) and Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto Zardari will be the co-chairs of the eight-member committee, according to instructions issued by the Prime Minister's Office.

According to the decision taken after a meeting between the PML-N and the PPP in Lahore on Sunday, the other members include ministers for defence; planning; finance; economic affairs and law, as well as the attorney general for Pakistan (AGP).

Notably, the government has not included any representative from the opposition Pakistan Tehreek-e-Insaf (PTI), which governs Khyber-Pakhtunkhwa (K-P). Without PTI's involvement, achieving consensus on the National Fiscal Pact and meeting the fiscal targets agreed with the International Monetary Fund (IMF) may prove difficult.

The fiscal pact had been signed by the finance ministers of the federal and provincial governments in September 2024 as an IMF condition. But the implementation remains slow as provinces, particularly Sindh, have concerns regarding taking some expenditure responsibilities.

The fiscal pact is aimed at rebalancing spending responsibilities and better aligns the provincial and federal taxation policies. Provinces agreed to the devolution of specific expenditures from the federal governments in line with the 18th Constitutional Amendment but the implementation could not begin.

"Starting in fiscal year 2026, all new PSDP [Public Sector Development Programme] projects impacting just one province are expected to be financed directly from provincial budgets," reads the new IMF staff-level report released on Saturday.

"The Prime Minister has been pleased to constitute the following High-Level Committee to oversee, coordinate, and ensure the effective implementation of the National Fiscal Pact," stated the instructions issued by the Prime Minister's Office.

The Finance Division will notify the committee and serve as its secretariat, according to the decision. The committee will share the proposals requiring consideration in the federal and the provincial budgets within 10 days.

One of the most important terms of reference of the committee is to build consensus and way forward on issues and challenges of national significance, including, inter alia, debt burden, critical infrastructure development and water security.

The debt servicing cost is expected to be Rs8.7 trillion or half of the new fiscal year's budget. There has been thinking within the federal government to pass on some of this cost to the provinces. However, under the Constitution, the provinces are not obligated to share these responsibilities.

Pakistan also needs to build new water storage facilities at war-footing to deal with India's unlawful act of blocking Pakistani share of water under the World Bank guaranteed Indus Basin Treaty (IWT).

According to the Prime Minister's Office, the high-level committee will provide strategic oversight and direction to ensure effective and timely implementation of all commitments under the National Fiscal Pact by both federal and provincial governments.

The committee will monitor implementation of revenue measures, including alignment of agricultural income tax with the FBR's income tax regime, transition of services GST to a negative list, development of a common framework for property taxation, and efforts to improve overall tax compliance and administration.

Although the provincial governments have passed the respective agriculture tax laws, their implementation remains challenging. Due to this fact, the IMF has imposed a new condition under the $7 billion package for developing a delivery mechanism.

"Implement the new AIT laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan," reads the second out of 11 new conditions.

The Prime Minister's Office stated that the high level committee will oversee implementation of spending reforms, including increased provincial contributions to higher education and social protection, Benazir Income Support Programme (BISP), realignment of the PSDP responsibilities, and phasing out of provincial support price regimes.

The committee will also track progress on governance measures such as the rollout of the electronic Pakistan Acquisition and Disposal System (e-PADs), adoption of green budget tagging, digitalisation of government payments and records, and coordination on anti-money laundering and combating terror financing together with relevant agencies.

The IMF report stated that the Pakistan Public Procurement Regulatory Authority (PPRA) is expanding the e-PADS to federal agencies and provincial governments. As of end-February 2025, a total of 623 procuring agencies, belonging to 51 federal ministries and departments are already integrated into the system.

In line with the National Fiscal Pacts, two provinces are continuing to ramp up their usage of the e-PADS; with another province already piloting their use in 2025 and the fourth province reviewing their current system for integration with e-PADS, said the IMF.

So far, out of the 32,359 planned procurement contracts worth Rs821.1 billion at the federal level in the e- PADS, 21,339 contracts costing Rs74.5 billion have been completed.

The high-level committee will also serve as the platform for resolving implementation challenges and facilitating consensus between the federal and provincial governments and relevant stakeholders, according to the decision.

The IMF report stated that it "recommended the authorities develop a framework to guide provincial investment of their accumulated cash surpluses in government securities through non-competitive bidding".