The recently released IMF Governance and Corruption Diagnostic Report (2025) has exposed the governance and corruption challenges in Pakistan and also highlighted the weaknesses, gaps and infirmities in the public sector financial management (PFM) system.
The strategic objective of strengthening our overall financial and economic governance structure is inherently dependent on a robust and effective PFM system. In its document, the IMF recommended an audit of the additional grants of the last ten years by the Auditor General of Pakistan (AGP).
The incessant release of additional grants during a financial year vitiates the sanctity of the budget adopted by Parliament and not only weakens parliamentary control of public finances, but also raises questions about our budget preparation and execution mechanisms.
There is a need to analyze the issue of additional grants in the context of their impact on the broader PFM ecosystem, while highlighting the weaknesses identified by the IMF, including issues of budgetary credibility and the transparency and accountability regime.
Supplementary subsidies are a critical but poorly understood component of Pakistan’s spending landscape because the public is unfamiliar with the significant in-year adjustments that occur after the budget is passed.
The national budget is an instrument for managing the gap between income and expenditure through better revenue-raising tax measures and setting prudent spending priorities. Insufficiency of approved budgeted funds or the emergence of unanticipated needs during the fiscal year triggers the award of additional grants.
They provide the government with legal authority to deal with unavoidable overruns, fund new policies, and regularize excess spending in accordance with constitutional requirements.
They do not balance the budget in the strict sense. However, additional subsidies help maintain transparency by reflecting the actual level of spending, enable the reallocation of savings or additional revenues to manage the overall fiscal situation, and ensure the continuity of essential public services.
If used excessively, these subsidies can weaken budgetary discipline, undermine the credibility of the initial budget and confuse the budgetary situation, particularly when they are granted late in the financial year or without corresponding revenues.
Within the PFM system, the budget and supplementary grants are linked and form part of the constitutional and administrative framework that governs how public money is allocated, spent and authorized.
The primary authorization for public spending comes from the annual budget, which includes estimated revenues, authorized expenditures, requests for grants and credits. Once adopted by the National Assembly, the budget becomes the legal authority allowing the government to spend public funds within approved limits.
However, experience has shown that during a fiscal year, expenditures may exceed the initially budgeted amounts due to poor budget preparation and forecasting, requirements, political decisions, price increases, implementation delays and mandatory payments.
Experience also shows that most grants are authorized in the fourth quarter of financial years, indicating a systematic use of year-end budget adjustments, debt settlement and ex post regularization. This trend highlights the inherent flaws in our budgeting and expense management practices that make budget controls unnecessary.
Section 84 of the Constitution allows the federal government to authorize excessive spending during the year, subject to subsequent parliamentary oversight. Furthermore, Article 25 of the PFM Law of 2019 states that “expenditures in excess of the budget amount as well as expenditures not falling within the scope or intent of a subsidy, unless regularized by an additional subsidy, shall be treated as excess expenditures.”
Past practices have revealed that, within this constitutional and administrative framework, successive governments have managed public expenditure by providing additional subsidies, thereby diluting the sanctity of the budget. There is no doubt that additional grants are awarded to meet unforeseen needs, but they often compromise the integrity of the budget by authorizing spending well beyond the originally approved limits.
The frequent and discretionary use of additional subsidies weakens budgetary discipline, encourages excessive spending by ministries and masks inefficiencies in financial planning and management.
The frequency with which additional subsidies are provided pushes public spending beyond the approved budget and diminishes transparency and parliamentary oversight, creating gaps between political priorities and actual resource allocation.
Over time, this practice has eroded budget credibility, widened budget deficits, and reduced public confidence in the government’s ability to prudently manage public finances.
Additional subsidies, when provided excessively or recklessly, compromise budgetary integrity and distort spending priorities. They transform the budget from a binding financial plan into a flexible list, thereby reducing confidence in public financial management.
Parliamentary oversight is a function enshrined in the Constitution and includes, among other things, the oversight and control of public funds. The ex post regularization mechanism of additional subsidies raises crucial questions about the accountability and transparency of public funds, given the absence of appropriate legislative oversight in the National Assembly before their approval.
Proposals for additional grants should be discussed in Parliament in the same way as the national budget, with appropriate oversight to ensure transparency and accountability.
Past practice shows that the process of approving additional grants has oscillated between bureaucratic (Finance Division) and political (cabinet) channels, with the legislative role and control remaining diluted and ritualistic.
Financial expediency and prudence require that additional grants from a financial year be approved in the same year, after deliberation in the National Assembly, rather than through an ex post approval process which is a fait accompli.
Even the Supreme Court has linked the provision of additional subsidies to strict compliance with the procedures outlined in Articles 83 and 84 of the Constitution, meaning that the approval of the National Assembly is required before incurring additional expenditure. The model of pre-executive approval of additional grants, either by the Finance Division or the cabinet, followed by ex post regularization, largely limits the role of the National Assembly to ratifying executive decisions during the year rather than shaping them. It appears that the system relies on “executive-imposed end-of-year corrections” rather than “robust ex ante budgeting and mid-year forecasting.”
It is expected that once the AGP publishes the audit report on the supplementary grants awarded over the past 10 years, the public will be able to assess whether budgetary discipline has been maintained during this period or whether the supplementary grant mechanism has become a parallel financing system. The AGP report should also highlight issues related to the exact volume, accountability aspects, transparency and monitoring of these grants.
To effectively manage the issue of additional subsidies, it is necessary to streamline budgeting on a realistic basis and move away from ritualistic and incremental approaches. Budget requirements should be linked to annual departmental plans and targets should be aligned with the strategic objectives defined in each entity’s medium-term budget framework.
One tool to manage over-awarding of additional grants during the year is to establish strict criteria for approving additional funds, as well as rigorous in-year monitoring to detect overruns at an early stage. To address transparency and oversight issues, requests for additional grants must be presented promptly to the National Assembly, with clear reasons and the expected impact of the additional funding.
The role and capacity of the Public Accounts Committee should be strengthened for post-audit monitoring of this funding. The government should adopt policies that limit large year-end supplementary budgets and instead conduct mid-year reviews to adjust allocations rather than waiting until the end of the year.
Additional funding allocations should be linked to performance and aligned with medium-term budget plans. Learning from past gaps can help strengthen overall financial integrity and reduce unnecessary reliance on additional financing.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the editorial policies of PK Press Club.tv.
The writer is the former Auditor General of Pakistan.
Originally published in The News
