Approves Rp3.2 trillion development package with provincial contributions of Rp920 billion
ISLAMABAD:
The National Economic Council (NEC) on Wednesday approved a national development spending bill of 3.2 trillion rupees – 25% less than the originally proposed spending – after three provinces agreed to freeze their stimulus spending and provide 920 billion rupees as a grant to the cash-starved Federation.
Provincial development budgets are 920 billion rupees below the originally proposed targets for the next financial year, which a government body approved on June 1. But these amounts are equal to the actual expenditures for this financial year.
The NEC approved Annual Development Plans (ADPs) worth Rs2,218 billion after provinces agreed to freeze their spending at actual levels this financial year, Planning Minister Ahsan Iqbal said while speaking to reporters after the meeting.
Prime Minister Shehbaz Sharif chaired the NEC meeting which also approved a reduced public sector development program (PSDP) of Rs 1 trillion. This was Rs 126 billion less than the initially approved bill.
Except Punjab, chief ministers of all other provinces participated in the meeting. PM Shehbaz noted that Punjab Chief Minister Maryam Nawaz could not attend the meeting as she was recovering from her recent medical procedure.
During the meeting, Chehbaz said the provinces had agreed to provide grants to the federal government for the next financial year, thanking the chief ministers for their “consultations and assistance on all matters.”
The federal government had requested Rs 1.2 trillion from the provinces for the next financial year 2026-27 to meet the additional financing requirements of defense and water sector projects. Iqbal said the mechanism for getting the money from the provinces and its processing was being finalized by the Finance Ministry.
The Prime Minister also called International Monetary Fund (IMF) Managing Director Kristalina Georgieva and briefed her about the new tax deal between the Center and the provinces.
Under this arrangement, provinces would provide a one-time grant to the federal government, which would be used during the next fiscal year to meet pressing funding needs. Shehbaz said Georgieva “is extremely grateful for Pakistan’s sincere efforts.”
The Center would retain most of the additional money that provinces will receive from the National Finance Commission (NFC) in the next financial year. This would effectively reduce the provincial share to well below 50% for at least a year, compared to 57.5% of the total divisible pool.
Iqbal said the agreement with the provinces was dependent on the effective collection of taxes by the Federal Board of Revenue (FBR) in the next financial year.
For the next fiscal year, the FBR’s tax target is Rs15,264 trillion. If the provinces receive around Rs 7.5 trillion this fiscal and their share remains unchanged for the next fiscal, it would be almost equal to 49% of the total FBR collection. But after excluding Balochistan, three provinces could effectively get around 42% of the divisible pool.
The FBR missed its fiscal targets by two fiscal years by a staggering margin of Rs2.2 trillion, more than double the amount the Center was asking from provinces in grants, also for the first time in recent history where provinces are giving money in grants.
The cumulative development envelope of Rs3.2 trillion is Rs1.05 trillion, which is 25% less than the development budgets that the Annual Plan Coordination Committee (APCC) had approved a few days ago.
Of this, the federal government’s contribution amounts to Rs 126 billion and Rs 920 billion will be contributed by the provincial governments – provided the FBR meets its target for the next financial year.
Ahsan Iqbal said that Punjab’s development budget was approved at Rs749 billion, which was Rs701 billion less than the figure approved by the APCC. Iqbal said Sindh’s revised expenditure stands at Rs706 billion, which is Rs110 billion less than the initially proposed ceiling.
The Planning Minister said that the development expenditure of Khyber-Pakhtunkhwa (KP) stands at Rs455 billion, which is Rs109 billion less than that approved earlier by the APCC. Balochistan’s expenditure stands at Rs 308 billion, which remains unchanged.
The Prime Minister said the Center had held consultations with the provinces on all issues with utmost seriousness and “we had taken decisions in the best interest of Pakistan”. He noted that the “biggest challenge” facing the country was “strengthening our defense,” particularly against terrorism.
“The entire nation, especially KP and Balochistan, as well as the law enforcement agencies and armed forces, are making sacrifices in the fight against terrorism,” he said, adding that without federal and provincial integration and support, “we would not have reached this point and now we have to move forward quickly.”
Government officials said the overall primary budget surplus target of 2% of GDP agreed with the IMF would remain unchanged and provincial contributions would be treated as grants. The provinces were not willing to permanently change the shape of the divisible pool and have, for now, deferred the issue by providing grant money to the Centre.
Shehbaz also said Pakistan needs to “introduce incentives” to accelerate GDP and go beyond macroeconomic stability. He stressed that the next phase requires urgent action in favor of employment, production and exports. Iqbal said: “The country cannot grow by relying on friendly nations and taking more loans, and the national discourse should now be on improving exports and productivity. »
The planning minister called bureaucracy the main obstacle to Pakistan’s development. “The federal bureaucracy needs to be changed because it is supposed to maintain law and order and collect taxes with a colonial-era mentality,” he added.
Iqbal said that Pakistan has achieved macroeconomic stability, but there is a need to inject growth, improve employment opportunities and production, increase exports and accelerate economic activity.
To achieve growth and accelerate GDP, Shehbaz said, “It is essential to introduce incentives that boost export growth, revive manufacturing and transform the economy.”
Economic objectives
The NEC approved targets for economic growth of 4% and inflation of 8.2%. It approved a growth target of 3.8% for the agriculture sector for the next financial year and 4.5% for large-scale manufacturing. The industrial sector is expected to grow by 4%, mainly due to a recovery in large-scale manufacturing (LSM), as well as growth momentum in the mining and quarrying, construction and energy sectors, according to the government’s annual plan.
The services sector target is set at 4.2%, supported by better performance in wholesale and retail trade; transportation, storage and communications; and financial services. The NEC approved a savings target of 14.3% of GDP, while the investment target is set at 15% of GDP.
The current account deficit target for the next fiscal year is approved at 0.7% of GDP, or $3.6 billion – much higher than the estimated deficit of $1 billion for this year. The NEC approved new external targets, which are negligible compared to this year’s results.
The export target is set at $32.8 billion, an increase of only 8.4% compared to exports estimated at $30.3 billion this year. Imports are expected to exceed $70 billion in the next fiscal year, up 5.6% from this year. As a result, the trade deficit for the next fiscal year is targeted at $37 billion, which will be largely filled through remittances, which are expected to increase to $42.3 billion next year, up only 2.7 percent due to the uncertain situation in the Middle East.
Ahsan Iqbal said the NEC had become a ceremonial forum to simply approve development goals, but it has now been decided to hold its quarterly meetings. He said any changes in the PSDP due to provincial inputs may also require further approval from the NEC.
He said the NEC had also approved 11 initiatives aimed at improving low investment; weak exports and resolve structural problems in the economy that are hampering growth and development. These are mainly linked to exports, resource mobilization, productivity, agricultural value chain and human value chain.
