The recently released IMF Corruption and Governance Diagnostic Report (2025) exposed the challenges related to governance and corruption in Pakistan and also highlighted the weaknesses, gaps and weaknesses of the public sector financial management (PFM) system.
The strategic objective of strengthening our overall financial and economic governance structure is intrinsically dependent on a strong and efficient PFM system. In its document, the IMF recommends an audit of the supplementary subsidies of the last ten years by the auditor general of Pakistan (AGP).
The incessant release of supplementary grants during a financial year vitiates the very sanctity of the budget passed by parliament and not only weakens parliamentary oversight of public finances but also raises questions about our budget-making and implementation mechanisms.
There is a need to analyze the issue of supplementary grants in the context of its impact on the broader PFM ecosystem while highlighting the weaknesses identified by the IMF, including issues of budget credibility and the transparency and accountability regime.
Supplemental grants are a critical but poorly understood component of Pakistan’s spending landscape, as the public is unfamiliar with the significant annual adjustments that occur after the budget is passed.
The national budget is an instrument for managing the gap between revenue and expenditure through better fiscal measures to generate revenue and setting prudent expenditure priorities. Insufficiency of approved budgeted funds or the emergence of unforeseen needs during the financial year triggers the award of supplementary grants.
They provide the government with legal authority to address unavoidable cost overruns, fund new policies, and regularize excess spending in accordance with constitutional requirements.
They do not balance the budget in the strict sense. However, supplementary grants help maintain transparency by reflecting the true level of spending, allow the reallocation of savings or additional revenue to manage the overall fiscal situation and ensure the continuity of essential public services.
If overused, these grants can weaken budget discipline and undermine the credibility of the original budget and blur the fiscal position, especially when awarded late in the financial year or without matching revenues.
Within the PFM system, the budget and supplementary grants are linked and form part of the constitutional and administrative framework that regulates 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, grant applications, and appropriations. Once approved by the National Assembly, the budget becomes the legal authority for the government to spend public funds within approved limits.
However, experience has shown that during a fiscal year, spending can exceed originally budgeted amounts due to poor budget preparation and forecasting, exigencies, policy decisions, price increases, delays in implementation, and mandatory payments.
Experience also shows that most subsidies are authorized in the fourth quarter of financial years, indicating a systemic dependence on year-end budget adjustments, settlement of liabilities and ex post regularization. This pattern highlights inherent flaws in our budgeting and expense management practices that make budget controls irrelevant.
Article 84 of the Constitution allows the federal government to authorize excessive expenditure during the year, subject to subsequent parliamentary scrutiny. Furthermore, Article 25 of the PFM Law of 2019 stipulates that “expenditure exceeding the budget amount, as well as expenditure not falling within the scope or intent of any subsidy, unless regularized by a supplementary subsidy, shall be treated as excessive expenditure.”
Past practices have revealed that within the ambit of this constitutional and administrative framework, successive governments have managed public expenditure by releasing supplementary subsidies, thereby diluting the sanctity of the budget. To be sure, supplemental grants are provided to meet unforeseen needs, but they often undermine the integrity of the budget by allowing expenditures far beyond the originally approved limits.
The frequent and discretionary use of supplementary subsidies weakens fiscal discipline, promotes excessive spending by ministries, and hides inefficiencies in financial planning and management.
The frequency with which supplementary subsidies are provided pushes public spending beyond the approved budget and decreases transparency and parliamentary oversight, creating gaps between political priorities and the actual allocation of resources.
Over time, this practice has eroded budget credibility, widened fiscal deficits, and reduced public confidence in the government’s ability to manage public finances prudently.
Supplemental grants, when awarded excessively or recklessly, compromise budget integrity and distort spending priorities. They turn the budget from a binding financial plan into a flexible list, ultimately 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 for supplementary grants raises critical questions about the accountability and transparency of public funds, given the absence of adequate legislative scrutiny in the National Assembly before its approval.
Supplementary grant proposals should be discussed in parliament in the same way as the national budget, with adequate scrutiny to ensure transparency and accountability.
Past practice shows that the approval process for supplementary grants has oscillated between bureaucratic (Finance Division) and political (Cabinet) channels, with the legislative role and oversight remaining diluted and ritualized.
Financial expediency and prudence require that supplementary grants arising during a financial year be approved in the same year, after due deliberation in the National Assembly, rather than through an ex post approval process which is a fait accompli.
Even the apex court has linked the issuance of supplementary grants 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 supplementary expenditure. The pattern of prior executive approval of supplementary grants, whether by the Finance Division or the Cabinet, followed by ex post regularization, results in the role of the National Assembly being largely limited to ratifying executive decisions each year rather than shaping them. It appears that the system relies on “executive-driven year-end corrections” rather than “robust ex ante budgeting and mid-year forecasts.”
It is expected that once the AGP publishes the audit report on supplementary grants issued over the past 10 years, the public will be able to assess whether budgetary discipline was maintained during that period or whether the supplementary grant mechanism became a parallel financing system. The AGP report should also highlight issues related to the exact volume, accountability aspects, transparency and oversight of these grants.
To effectively manage the issue of supplementary grants, it is necessary to rationalize budgeting on a realistic basis and move away from ritualistic and incremental approaches. Budgetary needs should be linked to annual ministerial plans and goals should be aligned with the strategic objectives outlined in each entity’s Medium-Term Budgetary Framework.
One tool to manage the excessive issuance of supplemental grants during the year is to establish strict criteria for approving additional funds, along with robust monitoring during the year to detect excesses at an early stage. To address transparency and oversight issues, requests for supplementary grants should be submitted to the National Assembly promptly, with clear reasons and the expected impact of the additional funding.
The role and capacity of the Public Accounts Committee for post-audit scrutiny of such funding should be strengthened. The government needs to adopt policies that restrict large year-end supplemental budgets and instead conduct mid-year reviews to adjust allocations rather than waiting until the end of the year.
The provision of additional funding allocations should be linked to performance and aligned with medium-term fiscal plans. Learning from past deviations can help strengthen overall financial integrity and reduce unnecessary reliance on supplemental financing.
Disclaimer: The views expressed in this article are those of the writer and do not necessarily reflect the editorial policy of PakGazette.tv.
The author is the former auditor general of Pakistan.
Originally published in The News
