Approves Rs3.2 trillion development package with Rs920 billion provincial contributions
ISLAMABAD:
The National Economic Council (NEC) on Wednesday approved Rs3.2 trillion national development spending bill – 25% less than originally proposed outlays – after three provinces agreed to freeze their uplift expenses and give Rs920 billion as grant to the cash-starved Federation.
The provincial development budgets are Rs920 billion less than the originally proposed targets for the next fiscal year, which a government body had approved on June 1st. But these are equal to this fiscal year’s actual spending.
The NEC has approved Rs2.218 trillion worth Annual Development Plans (ADPs) after the provinces agreed to freeze their spending at this fiscal year’s actual levels, Planning Minister Ahsan Iqbal said, while speaking to journalists after the meeting.
Prime Minister Shehbaz Sharif chaired the NEC meeting that also approved a trimmed Rs1 trillion worth Public Sector Development Programme (PSDP). This was Rs126 billion less than the originally approved bill.
Barring Punjab, the chief ministers of all other provinces participated in the meeting. Prime Minister Shehbaz noted that Punjab Chief Minister Maryam Nawaz could not attend the meeting as she was recovering after her recent medical procedure.
During the meeting, the Shehbaz said that the provinces have agreed to give grants to the federal government for the next fiscal year, thanking the chief ministers for their “consultations and assistance on all matters”.
The federal government had demanded Rs1.2 trillion from the provinces for the next fiscal year 2026-27 to meet additional funding requirements of the defense and water sector projects. Iqbal said the mechanism to get the money from the provinces and its treatment was being finalised by the Finance Ministry.
The prime minister also called International Monetary Fund (IMF) Managing Director Kristalina Georgieva and briefed her about the new fiscal arrangement between the Centre and the provinces.
According to this arrangement, the provinces would give a one-time grant to the federal government, which would be utilised during the next fiscal year to meet pressing financing requirements. Shehbaz said that Georgieva “was extremely appreciative of Pakistan’s sincere efforts”.
The Centre would retain most of the additional money that the provinces will get under the National Finance Commission (NFC) in the next fiscal year. This would effectively bring down the provincial share to far less than 50% for at least one year as against 57.5% of the total divisible pool.
Iqbal said that the arrangement with the provinces was contingent upon the actual tax collection by the Federal Board of Revenue (FBR) in the next fiscal year.
For the next fiscal year, the FBR’s tax target is Rs15.264 trillion. If the provinces get around Rs7.5 trillion in this fiscal year and their share remains unchanged for the next fiscal year it would almost be equal to 49% of the total FBR collection. But after excluding Balochistan, three provinces may effectively get about 42% of the divisible pool.
The FBR has missed its two fiscal year’s tax targets by staggering margins of Rs2.2 trillion, which is more than double the amount the Centre was seeking from the 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 or 25% less than the development budgets that the Annual Plan Coordination Committee (APCC) had approved a few days ago.
Out of this sum, the federal government’s contribution is Rs126 billion and Rs920 billion will be given by the provincial governments – subject to the condition that the FBR would achieve its next fiscal year’s target.
Ahsan Iqbal said that the Punjab’s development budget has been approved at Rs749 billion, which is Rs701 billion less than the figure approved by the APCC. Iqbal said Sindh’s revised outlay is Rs706 billion, which is Rs110 billion less than the originally proposed ceiling.
The planning minister said that Khyber-Pakhtunkhwa (K-P) development outlay is Rs455 billion, which is Rs109 billion less than approved earlier by APCC. Balochistan’s outlay is Rs308 billion, which remains unchanged.
The prime minister stated that the Centre held consultations with the provinces on all matters with extreme seriousness, and “we made decisions in the best interest of Pakistan”. He noted that the “biggest challenge” the country faced was “to strengthen our defence”, particularly against terrorism.
“The entire nation, especially K-P and Balochistan, as well as the law-enforcement agencies and armed forces, is 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”.
The government officials said that the overall primary budget surplus target of 2% of the GDP agreed with the IMF will remain unchanged and provincial contributions will be treated as grant. The provinces were not willing to permanently change the shape of the divisible pool and have, for now, deferred the matter by giving money in grant to the Centre.
Shehbaz also said that Pakistan must “introduce incentives” to accelerate GDP and move beyond macroeconomic stability. He stressed that the next phase requires urgent action on jobs, production, and exports. Iqbal said: “The country cannot grow by relying on friendly nations and taking more loans and the national discourse now should be about enhancing exports and productivity.”
The planning minister termed bureaucracy as the biggest hurdle in the development of Pakistan. “The federal bureaucracy has to be changed as it is meant to maintain law and order and collect taxes with a colonial-era mindset,” 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 the GDP, Shehbaz said: “It is essential to introduce incentives that drive export growth, revive manufacturing, and transform the economy”.
Economic targets
The NEC approved 4% economic growth and 8.2% inflation targets. It approved a 3.8% growth target for the agriculture sector for next fiscal year and 4.5% for large-scale manufacturing. The industrial sector is targeted to grow by 4%, mainly due to a revival in large-scale manufacturing (LSM), alongside growth momentum in mining and quarrying, construction and energy, according to the government’s annual plan.
The services sector target is set at 4.2%, underpinned by better performance in wholesale and retail trade; transport, storage and communications; and financial services. The NEC has approved a savings target at 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 – far higher than this year’s estimated $1 billion deficit. The NEC approved new external targets, which are negligible compared with this year’s outcomes.
The exports target is set at $32.8 billion – higher by only 8.4% over this year’s estimated exports of $30.3 billion. Imports are projected to cross $70 billion next fiscal year – up by 5.6% over this year. As a result, the trade deficit for the next fiscal year is targeted at $37 billion, which will be largely filled on the back of remittances, which are projected to increase to $42.3 billion next year, up by only 2.7% due to the uncertain situation in the Middle East.
Ahsan Iqbal said that the NEC had become a ceremonial forum to just approve development targets but it has now been decided to hold its quarterly meetings. He said that any changes in the PSDP because of contributions by the provinces might also need NEC’s another stamp of approval.
He said that the NEC has also approved 11 initiatives to enhance low investment; low exports and address the structural issues of the economy holding back growth and development. These are mostly related to exports, resource mobilisation, productivity, agriculture value chain and human value chain.
