Latest news with #NationalFiscalPact
Business Recorder
22-05-2025
- Business
- Business Recorder
National Fiscal Pact
EDITORIAL: The formation of a high-level political committee to oversee the implementation of the National Fiscal Pact was, on paper, an essential step forward. With looming fiscal pressures and critical IMF targets at stake, the need for national consensus is urgent. But the committee's composition — conspicuously excluding the government of Khyber Pakhtunkhwa — has already compromised the credibility of what ought to have been a constitutional and inclusive exercise. The stakes are high. The fiscal pact, signed in September 2024, is not just another intergovernmental agreement. It is a structural reform benchmark agreed with the IMF, designed to rationalise federal and provincial expenditure responsibilities, devolve project financing, and ensure policy coherence in taxation. If implemented earnestly, it could improve public finance management and reduce unsustainable federal deficits. But for such structural reforms to take root, especially under the 18th Amendment, consensus across all federating units is not optional — it is a constitutional necessity. The exclusion of Khyber Pakhtunkhwa from the newly-constituted eight-member oversight committee, therefore, would be incomplete both in letter and the spirit of the federal structure. No matter how noble the intent or pressing the deadline, excluding a province from decisions that directly affect its fiscal autonomy weakens national cohesion and risks turning a national reform into a partisan compact. If the goal is to build consensus on complex issues such as debt burden sharing, development financing, and water security — all of which require delicate negotiation and joint ownership — then leaving out any provincial government could be counterproductive. The committee's terms of reference include preparing budget proposals for both federal and provincial budgets within ten days. How can such input be complete or credible if one province is absent from the table? The matter becomes even more urgent considering the content of the new IMF staff-level report, which highlights that, starting in FY2026, all new Public Sector Development Programme (PSDP) projects benefiting only one province must be financed directly from provincial budgets. This will inevitably require all provinces — KP included — to shoulder more fiscal responsibility. They deserve a voice in shaping how that responsibility is structured. There is also the matter of principle. If the Federation intends to pass on a portion of the Rs8.7 trillion debt servicing cost to provinces, as is being quietly discussed, then it must first establish a consensus through mechanisms that are both constitutional and participatory. The 18th Amendment has already redefined the contours of fiscal and administrative authority. Any effort to rebalance burdens and responsibilities must begin with a respect for that framework. Otherwise, not only will the reforms falter, but they will likely invite legal and political pushback that the economy can ill afford. The committee is also tasked with coordinating the development of critical water infrastructure — an area where KP is a key stakeholder. As Pakistan prepares to counter India's unlawful obstruction of its water share under the Indus Waters Treaty, national unity is vital. Excluding a frontline province from this strategic conversation can be described as a flawed decision, given the real import of the economic challenges facing the country. If the goal is to demonstrate fiscal discipline and political maturity to the IMF and international partners then the current path risks doing the opposite. The National Fiscal Pact will be judged not by the optics of a high-powered committee, but by the integrity and inclusiveness of its process. Copyright Business Recorder, 2025
Express Tribune
20-05-2025
- Business
- Express Tribune
PM orders swift rollout of FBR reforms to tackle tax evasion
Listen to article Prime Minister Shehbaz Sharif directed on Tuesday the immediate implementation of ongoing reforms within the Federal Board of Revenue (FBR), stressing the importance of digitisation and automation to overhaul Pakistan's tax system. Chairing a high-level review meeting, the prime minister highlighted the need to rectify what he described as '70 years of mismanagement' in the country's taxation framework. Shehbaz promised maximum facilitation for honest taxpayers and businesses but vowed strict legal action against those involved in tax evasion, with no concessions. The meeting discussed the launch of a National Targeting System designed to curb sales tax evasion. This system will employ e-tags and digital devices to track goods transport, supported by an e-Bilty mechanism integrated into the FBR system. Digital monitoring installations are planned at key highways and city entry points to reduce smuggling and ease commuter delays. Officials also briefed the prime minister on a Customs Targeting System to automate import and export monitoring at ports and airports. This system will use artificial intelligence and link with domestic and international databases to tackle smuggling and tax fraud. Plans to train FBR staff on these new technologies were also reviewed, with a phased rollout set to begin with a pilot project in a major city. Key sectors like cement, hatcheries, poultry feed, tobacco, and beverages will face stricter sales tax surveillance, expanding monitoring systems similar to those used in the sugar industry to tobacco, beverage, steel, and cement sectors. The prime minister stressed that all measures be implemented swiftly, efficiently, and sustainably. Meanwhile, Prime Minister Shehbaz Sharif has constituted a high-level political committee to oversee the implementation of the National Fiscal Pact. The committee will also work toward building consensus on sharing the debt burden between the federation and provinces, and coordinate the development of critical water infrastructure amid Indian aggression. Deputy Prime Minister Ishaq Dar of the Pakistan Muslim League-Nawaz (PML-N) and Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto Zardari will be the co-chairs of the eight-member committee, according to instructions issued by the Prime Minister's Office. According to the decision taken after a meeting between the PML-N and the PPP in Lahore on Sunday, the other members include ministers for defence, planning, finance, economic affairs, and law, as well as the attorney general for Pakistan (AGP).
Express Tribune
19-05-2025
- Business
- Express Tribune
Shehbaz forms panel to oversee fiscal pact
Prime Minister Shehbaz Sharif has constituted a high-level political committee to oversee the implementation of the National Fiscal Pact. The committee will also work toward building consensus on sharing debt burden between the federation and provinces, and coordinate the development of critical water infrastructure amid Indian aggression. Deputy Prime Minister Ishaq Dar of the Pakistan Muslim League-Nawaz (PML-N) and Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto Zardari will be the co-chairs of the eight-member committee, according to instructions issued by the Prime Minister's Office. According to the decision taken after a meeting between the PML-N and the PPP in Lahore on Sunday, the other members include ministers for defence; planning; finance; economic affairs and law, as well as the attorney general for Pakistan (AGP). Notably, the government has not included any representative from the opposition Pakistan Tehreek-e-Insaf (PTI), which governs Khyber-Pakhtunkhwa (K-P). Without PTI's involvement, achieving consensus on the National Fiscal Pact and meeting the fiscal targets agreed with the International Monetary Fund (IMF) may prove difficult. The fiscal pact had been signed by the finance ministers of the federal and provincial governments in September 2024 as an IMF condition. But the implementation remains slow as provinces, particularly Sindh, have concerns regarding taking some expenditure responsibilities. The fiscal pact is aimed at rebalancing spending responsibilities and better aligns the provincial and federal taxation policies. Provinces agreed to the devolution of specific expenditures from the federal governments in line with the 18th Constitutional Amendment but the implementation could not begin. "Starting in fiscal year 2026, all new PSDP [Public Sector Development Programme] projects impacting just one province are expected to be financed directly from provincial budgets," reads the new IMF staff-level report released on Saturday. "The Prime Minister has been pleased to constitute the following High-Level Committee to oversee, coordinate, and ensure the effective implementation of the National Fiscal Pact," stated the instructions issued by the Prime Minister's Office. The Finance Division will notify the committee and serve as its secretariat, according to the decision. The committee will share the proposals requiring consideration in the federal and the provincial budgets within 10 days. One of the most important terms of reference of the committee is to build consensus and way forward on issues and challenges of national significance, including, inter alia, debt burden, critical infrastructure development and water security. The debt servicing cost is expected to be Rs8.7 trillion or half of the new fiscal year's budget. There has been thinking within the federal government to pass on some of this cost to the provinces. However, under the Constitution, the provinces are not obligated to share these responsibilities. Pakistan also needs to build new water storage facilities at war-footing to deal with India's unlawful act of blocking Pakistani share of water under the World Bank guaranteed Indus Basin Treaty (IWT). According to the Prime Minister's Office, the high-level committee will provide strategic oversight and direction to ensure effective and timely implementation of all commitments under the National Fiscal Pact by both federal and provincial governments. The committee will monitor implementation of revenue measures, including alignment of agricultural income tax with the FBR's income tax regime, transition of services GST to a negative list, development of a common framework for property taxation, and efforts to improve overall tax compliance and administration. Although the provincial governments have passed the respective agriculture tax laws, their implementation remains challenging. Due to this fact, the IMF has imposed a new condition under the $7 billion package for developing a delivery mechanism. "Implement the new AIT laws through a comprehensive plan, including the establishment of an operational platform for processing returns, taxpayer identification and registration, a communication campaign, and a compliance improvement plan," reads the second out of 11 new conditions. The Prime Minister's Office stated that the high level committee will oversee implementation of spending reforms, including increased provincial contributions to higher education and social protection, Benazir Income Support Programme (BISP), realignment of the PSDP responsibilities, and phasing out of provincial support price regimes. The committee will also track progress on governance measures such as the rollout of the electronic Pakistan Acquisition and Disposal System (e-PADs), adoption of green budget tagging, digitalisation of government payments and records, and coordination on anti-money laundering and combating terror financing together with relevant agencies. The IMF report stated that the Pakistan Public Procurement Regulatory Authority (PPRA) is expanding the e-PADS to federal agencies and provincial governments. As of end-February 2025, a total of 623 procuring agencies, belonging to 51 federal ministries and departments are already integrated into the system. In line with the National Fiscal Pacts, two provinces are continuing to ramp up their usage of the e-PADS; with another province already piloting their use in 2025 and the fourth province reviewing their current system for integration with e-PADS, said the IMF. So far, out of the 32,359 planned procurement contracts worth Rs821.1 billion at the federal level in the e- PADS, 21,339 contracts costing Rs74.5 billion have been completed. The high-level committee will also serve as the platform for resolving implementation challenges and facilitating consensus between the federal and provincial governments and relevant stakeholders, according to the decision. The IMF report stated that it "recommended the authorities develop a framework to guide provincial investment of their accumulated cash surpluses in government securities through non-competitive bidding".
Business Recorder
03-05-2025
- Business
- Business Recorder
S&P suggests staying the course, accelerating reforms
ISLAMABAD: The Standard and Poor's (S&P) Global Ratings recommended Pakistan to stay the course, deepen the reform momentum, and focus on embedding permanence in macroeconomic stability, with international partners, while expressing readiness to support the country in achieving these objectives. The Federal Minister for Finance and Revenue, Senator Muhammad Aurangzeb, along with his team, held a Zoom meeting on Friday with representatives of S&P Global Ratings as part of the ongoing Pakistan Sovereign Ratings Review. Aurangzeb briefed S&P on reform progress and economic stability outlook. The finance minister presented a detailed overview of the government's macroeconomic reform agenda and reaffirmed Pakistan's commitment to achieving sustainable and inclusive economic growth by enhancing productivity and promoting exports. He emphasised the continuity of reforms across key sectors including taxation, energy, state-owned enterprises (SOEs), privatisation, public finance management, rightsizing of government functions, and more active debt management strategies. The finance minister noted that inflation and the current account deficit (CAD) had remained a good story throughout the year, contributing positively to overall economic stability. He also highlighted the achievement of surpluses in both the primary balance and the current account as major milestones, underscoring the improving fundamentals of Pakistan's economy. He stated that the country's external portfolio was well-managed, with foreign exchange reserves projected to reach $14 billion by the end of June, supported by upcoming institutional and trade inflows, strong remittances, and easing oil prices, all of which are helping reduce pressure on the external account. He credited strict financial discipline and robust coordination between the federal and provincial governments for enabling the achievement of a primary surplus. The finance minister pointed to significant institutional reforms including the signing of a comprehensive National Fiscal Pact, operationalisation of the National Tax Council, and the imposition of agricultural income tax, reflecting a whole-of-government approach and a shared national resolve to improve resource efficiency, broaden the tax base, and ensure long-term inclusive growth. He stated that the tax-to-GDP ratio was expected to reach 10.6 percent by the end of June, which would mark progress toward the government's target of raising it to 13 percent by the conclusion of the 37-month Extended Fund Facility (EFF) with the International Monetary Fund (IMF). He added that the separation of the Tax Policy office from the Federal Board of Revenue (FBR) was part of a broader effort to align tax policymaking with economic value principles rather than administrative convenience. The finance minister also shared insights from his recent visit to the United States for the World Bank/IMF Spring Meetings, during which he held over 70 meetings in six days with counterparts, Development Finance Institutions (DFIs), investment banks, multilateral and bilateral partners, rating agencies, think tanks, and media outlets. He conveyed that the feedback received from these stakeholders consistently reflected appreciation and support for the structural reforms and macroeconomic stability achieved by Pakistan over the past 14 months. At the same time, there was a strong and unified recommendation for Pakistan to stay the course, deepen the reform momentum, and focus on embedding permanence in macroeconomic stability, with international partners expressing readiness to support the country in achieving these objectives. Copyright Business Recorder, 2025
Express Tribune
27-04-2025
- Business
- Express Tribune
Meeting benchmarks but missing growth
Pakistan faces over $8 billion in external debt maturities in FY25 (excluding $13 billion in routinely rolled-over bilateral loans) and any delay in debt rollovers can put the IMF programme at risk. photo: file Listen to article Pakistan has made considerable progress in meeting the structural benchmarks under the IMF's Extended Fund Facility (EFF), such as the approval of the National Fiscal Pact to enhance fiscal coordination, harmonisation of provincial agricultural income tax laws with federal tax laws, publication of PSDP project criteria and progress reports, and the non-provision of tax amnesties. However, some benchmarks, particularly those in the energy sector, may not prove as sustainable as projected. One such case is the elimination of captive power from the gas sector. While aimed at reducing the Rs2,083 billion circular debt in the gas sector, this benchmark could potentially harm the industry by causing a $3 billion loss in exports, as reported by Socioeconomic Insights and Analysis (SIA). With an already struggling industrial base, this policy could further damage the sector, which serves as the backbone of Pakistan's economy. Secondly, the reliability of such a policy is also questionable; without ensuring uninterrupted energy supply for the industry, the losses could be multifold. The textile industry alone could face a 24% revenue loss (Yasmeen et al, 2022). These kinds of experiments could prove troublesome for the industrial sector. Even though some benchmarks, including the one discussed above, might not be industry friendly, if meeting the benchmarks were a sign of a healthy economy, there should have been visible signs of growth. However, despite compliance with most of the IMF's structural benchmarks and a positive signal from the IMF staff regarding Pakistan's economic stability and recovery, the economy doesn't reflect any meaningful signs of growth. This disconnect between the reform programme and actual economic recovery is stark, and is evident when we analyse the performance of the large-scale manufacturing (LSM) sector, which showed a 1.7% decline on a year-on-year basis. This can challenge the perception that meeting structural benchmarks alone can restore growth momentum. In its recent World Economic Outlook report, the IMF revised Pakistan's growth projection downward from 3% to 2.6%. While global growth slowdown has been significantly attributed to external shocks, including the protectionist trade measures introduced by the Trump administration, Pakistan's deeply rooted domestic structural issues cannot be ignored. The country's export base remains narrowly concentrated in low value sectors, which are further expected to plummet due to tariffs and considering that the US is Pakistan's major export destination, initial tariffs of 29%, which are currently at 90 days pause, may cause an export loss of $564 million in fiscal year 2025-26. This makes the country vulnerable to external shocks and limits its growth potential. These external shocks coupled with domestic constraints such as weak private sector confidence and underinvestment continue to weigh heavily on economic recovery. A UK-based economist Ahmed Jamal Pirzada rightly pointed out that despite the increase in credit to the private sector, the investment in the private sector has been stagnant. This reveals a fundamental issue that Pakistan is unable to offer a business environment conducive to long-term investment. Businesses are hesitant to commit their capital domestically (despite the availability of credit and low interest rates) and are instead looking for opportunities to move their assets to countries which promise steady returns on their investments. While Pakistan has met several structural benchmarks and is making progress on the remaining, it is important to note that the completion of the programme does not depend entirely on compliance with these reforms. The fragility of the external account remains the Achilles' heel for the completion of the programme. If Pakistan is not successful in securing timely rollovers of maturing debt or negotiating favourable terms for debt re-profiling, this can put the IMF programme at risk. Last month, a $2 billion rollover from China provided the country with temporary breathing space, but this doesn't address the structural weaknesses of Pakistan's external sector. In line with the economic stability, Fitch Ratings for Pakistan upgraded to B- with a stable outlook signals for the economy. This offers some confidence to consumers and businesses in short-term macroeconomic management. However, the rating agency also warned that Pakistan's external financing needs are still substantial. Pakistan faces over $8 billion in external debt maturities in FY25 (excluding $13 billion in routinely rolled-over bilateral loans) and any delays in rollovers of debt can seriously risk the IMF programme. While Pakistan has achieved certain stability goals including the stable inflation leading to low interest rates, the broader economic challenges, particularly low investment, concentrated exports, and external account vulnerabilities continue to hinder the path towards the growth-based economy. Even if the IMF programme is successfully completed, the government's priority should not be to secure another bailout programme but to focus on the structural issues that are holding back sustainable growth. The writer is affiliated with the PRIME Institute as a research economist
