KP advisor says NEC cannot change provincial revenue shares as Center seeks Rs1.2 trillion for next fiscal
ISLAMABAD:
Pakistan’s head of state and head of government met on Monday to resolve differences over the new budget, as Khyber-Pakhtunkhwa’s financial advisor revealed that the Federation wanted to freeze the new provincial shares at this year’s level to conserve an extra Rs 1.2 trillion.
Muzzammil Aslam, the financial advisor to the KP chief minister, also said that the National Economic Council (NEC) forum cannot be used to retain provincial shares and such a move would require legal cover.
The high-level meeting between President Asif Zardari and Prime Minister Shehbaz Sharif took place on the day the government postponed the meeting of the NEC – the body responsible for approving development budgets and the national macroeconomic framework – for the third time.
The Ministry of Finance also struggled to get approval from the International Monetary Fund (IMF) for the new arrangement to keep provincial shares under the National Finance Commission (NFC) award in obtaining the NEC label. The Finance Ministry on Monday considered various options to convince the IMF, including the possibility of a call to the global lender’s chief executive.
Prime Minister Shehbaz met President Zardari, whose party rules two provinces, to seek his support to make the new budget viable. The Center is banking on withdrawal of Rs 1.2 trillion from provinces’ shares under the NFC for the financial year 2026-27.
This delayed the budget announcement and there was extreme uncertainty in the country due to lack of clarity on budget dates.
According to a statement issued by the presidency, Prime Minister Shehbaz met President Zardari and his team. “The meeting discussed the economy, budget for the next financial year, recent elections in Gilgit-Baltistan, situation in Azad Kashmir, law and order and issues of national importance,” the Presidency said.
He added that in discussing the budget proposals and public assistance, the President emphasized the priority given to public welfare, provincial rights and economic stability in the federal budget. The President directed that all efforts should be made to align the growth rate and social welfare programs in the next budget.
The discussions revolved around the Federation’s desire to cut a pie of Rs 1.2 trillion from the actions of the four provinces to meet expenditure on strategic initiatives and to grant tax breaks that are not possible in the limited federal fiscal space.
Addressing a press conference after a meeting with the federal government, Muzzammil Aslam, financial advisor to the KP chief minister, said there was an extreme level of uncertainty in the government regarding next year’s budget.
He said there was no consensus between the provinces and the Center on the deductions of Rs 1.2 trillion and distribution of the federal development budget, nor between the IMF and the Finance Ministry on the new budget.
The NEC meeting was postponed on Monday without giving a reason and we did not know if it would take place on Tuesday (today), Aslam said. He added that due to lack of consensus on the Centre’s request for additional resources, he was not sure whether the budget would be announced on June 10.
“Everything is fluid, uncertain and no one has clarity,” Aslam said.
He revealed that the federal government has proposed freezing provincial shares in the NFC to this year’s actual transfers. He said the additional Rs 1.2 trillion that the four provinces will receive in the next financial year due to increased federal tax collection should be retained by the Centre.
For this financial year, the government had indicated Rs8.2 trillion in transfers to the provinces. But due to the extremely poor performance of the FBR, the four provinces may receive Rs 7.5 trillion. Aslam said for the next financial year, the federal government wanted to freeze provincial shares at this year’s level by obtaining approval from the provinces through the NEC.
To a question, Aslam replied that “NEC is not the forum to deduce provincial shares”. The NEC is a constitutional body chaired by the Prime Minister in the presence of all provincial chief ministers. The KP advisor said it was unclear whether the provincial chief minister would attend the NEC meeting.
He said the Center has demanded that four provinces contribute according to their shares in the NFC, with KP’s share being around Rs 180 billion. Initially, the federal government had requested Rs1.7 trillion from the provinces, but later adjusted the demand downward.
Punjab’s contribution could be around Rs 650 billion, Sindh’s contribution could be Rs 300 billion, KP’s contribution could be Rs 180 billion and Balochistan’s contribution could be Rs 110 billion.
Aslam said the extra money was requested for “certain strategic objectives” and that former Prime Minister Imran Khan would not even refuse to contribute. But even if all provinces agree to give up their extra shares, technically the money cannot be granted based on a NEC decision, Aslam said.
He said the 1.2 trillion rupees were demanded in addition to provincial cash surpluses and that this would turn their budgets into deficits.
The Rs 1.2 trillion is almost half of the Rs 2.2 trillion revenue shortfall that the FBR faced in two fiscal years – a poor performance that has now thrown the federal government at the mercy of the provinces and also led to an increase in petroleum tax to Rs 116 per liter of petrol.
Government sources said the Finance Ministry had also taken up the issue of obtaining additional resources from the provinces from the IMF through the NEC. They said the IMF was reluctant to accept the mechanism proposed by the NEC to deduct provincial shares. They said that IMF approval was important before accepting this mechanism.
Government sources said the Rs1.2 trillion would be sought for defence, financing strategic water-related projects, providing tax breaks to the corporate sector and reducing withholding taxes on real estate transactions. Some of these measures cannot be taken within federal fiscal space.
The Finance Ministry did not respond to questions on whether it was correct that Pakistan had shared its position on seeking Rs1.2 trillion from provinces through the NEC mechanism. The ministry also did not clarify whether the IMF had agreed to this arrangement and whether the money requested from the provinces was only for defense purposes or would also be used to grant tax breaks.
Aslam once again complained that his province is being marginalized and only Rs2.3 billion is allocated out of next year’s budget of Rs1.12 trillion. He said the federal allocation under the fast track implementation program is also reduced from Rs10 billion to Rs56 billion.
