Approves Rp3.2 trillion development package with provincial contributions of Rp920 billion
ISLAMABAD:
The National Economic Council (NEC) on Wednesday approved a Rp3.2 trillion national development spending bill (25% less than originally proposed outlays) after three provinces agreed to freeze their improvement spending and provide Rp920 billion as a grant to the cash-strapped Federation.
Provincial development budgets are 920 billion rupees short of originally proposed targets for the next fiscal year, which a government body had approved on June 1. But these are equal to the actual spending of this fiscal year.
The NEC approved Annual Development Plans (ADP) worth Rs 2,218 trillion after provinces agreed to freeze their spending at this fiscal year’s actual levels, Planning Minister Ahsan Iqbal said while speaking to reporters after the meeting.
Prime Minister Shehbaz Sharif chaired the NEC meeting that also approved a trimmed Public Sector Development Program (PSDP) worth Rs 1 trillion. This was 126 billion rupees less than the bill originally passed.
Except Punjab, chief ministers of all other provinces participated in the meeting. Chief Minister 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, Shehbaz said the provinces had agreed to provide grants to the federal government for the next fiscal year and thanked the chief ministers for their “consultations and assistance in all matters”.
The federal government had demanded Rs 1.2 trillion from provinces for the upcoming fiscal year 2026-27 to meet additional funding requirements of water and defense sector projects. Iqbal said the Finance Ministry was finalizing the mechanism to get the money from the provinces and its treatment.
The prime minister also called up International Monetary Fund (IMF) Managing Director Kristalina Georgieva and briefed her about the new fiscal deal between the Center and the provinces.
Under this agreement, 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 “greatly appreciated 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 fiscal year. This would effectively reduce the provincial share to much less than 50% for at least a year, down from 57.5% of the divisible total.
Iqbal said the agreement with the provinces was dependent on the actual collection of taxes by the Federal Board of Revenue (FBR) in the next fiscal year.
For the next fiscal year, the FBR’s fiscal target is Rs 15,264 trillion. If provinces get around Rs 7.5 trillion in this fiscal year and their share remains unchanged for the next fiscal year, it would be almost 49% of the total FBR collection. But after excluding Balochistan, three provinces could effectively get around 42% of the divisible fund.
The FBR has missed its two fiscal year fiscal targets by staggering margins of Rs 2.2 trillion, which is more than double the amount the Center was seeking from provinces in grants, also for the first time in recent history where provinces are giving money in grants.
The cumulative development allocation of Rs 3.2 trillion is Rs 1.05 trillion or 25% less than the development budgets that the Annual Plan Coordination Committee (APCC) had approved a few days ago.
Of this sum, the federal government’s contribution is Rs 126 billion and provincial governments will contribute Rs 920 billion, subject to the condition that the FBR achieves its target for the next fiscal year.
Ahsan Iqbal said the Punjab development budget was approved at Rs 749 billion, Rs 701 billion less than the figure approved by the APCC. Iqbal said Sindh’s revised outlay is Rs 706 billion, Rs 110 billion less than the originally proposed ceiling.
The Planning Minister said the outlay for the development of Khyber-Pakhtunkhwa (KP) is Rs 455 billion, Rs 109 billion less than what was earlier approved by the APCC. Balochistan’s outlay is Rs 308 billion, a figure that remains unchanged.
The Prime Minister asserted that the Center held consultations with the provinces on all matters with extreme seriousness and “we take decisions in the best interest of Pakistan.” He noted that the “biggest challenge” facing the country is “strengthening our defense,” particularly against terrorism.
“The entire nation, especially KP and Balochistan, as well as law enforcement 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 will remain unchanged and provincial contributions will be treated as grants. The provinces were not willing to permanently change the shape of the divisible fund and have, for now, deferred the matter by giving money in the form of grant to the Centre.
Shehbaz also said Pakistan must “introduce incentives” to accelerate GDP and go beyond macroeconomic stability. He stressed that the next phase requires urgent actions in terms of employment, production and exports. Iqbal said: “The country cannot grow by depending on friendly nations and taking more loans and the national discourse should now focus on improving exports and productivity.”
The Planning Minister termed bureaucracy as the biggest obstacle to the development of Pakistan. “The federal bureaucracy must be changed as it must maintain law and order and collect taxes with a colonial-era mentality,” he added.
Iqbal said 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 drive export growth, revive manufacturing and transform the economy.”
Economic objectives
The NEC approved economic growth targets of 4% and inflation of 8.2%. It approved a growth target of 3.8% for the agricultural sector for the next fiscal year and 4.5% for large-scale manufacturing. The industrial sector is expected to grow by 4%, mainly due to a revival in large-scale manufacturing (LSM), along with boosting growth in mining and quarrying, construction and energy, according to the government’s annual plan.
The service sector target is set at 4.2%, supported by better results in wholesale and retail trade; transportation, storage and communications; and financial services. The CNE has approved a savings target of 14.3% of GDP, while the investment target has been 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 CNE approved new external objectives, which are insignificant compared to this year’s results.
The export target has been set at 32.8 billion dollars, a figure only 8.4% higher than the estimated exports for this year of 30.3 billion dollars. Imports are expected to exceed $70 billion next fiscal year, an increase of 5.6% from this year. As a result, the trade deficit for the next fiscal year is projected at $37 billion, which will be largely covered by remittances, which are projected to rise to $42.3 billion next year, an increase of only 2.7% due to the uncertain situation in the Middle East.
Ahsan Iqbal said that the NEC had become a ceremonial forum for approving development goals, but now it was decided to hold its quarterly meetings. He said any changes to the PSDP due to contributions from provinces might also need another seal of approval from the NEC.
He said that the CNE has also approved 11 initiatives to promote low investment; low exports and address the structural problems of the economy that slow growth and development. These are mainly related to exports, resource mobilization, productivity, agricultural value chain and human value chain.
