Approves Rs3.2 trillion development package with Rs920 billion provincial contribution
ISLAMABAD:
The National Economic Council (NEC) on Wednesday approved the Rs3.2 trillion national development expenditure bill – 25% less than the originally proposed outlay – after three provinces agreed to freeze their spending hikes and provide Rs920 billion in grants to the cash-starved Federation.
The provincial development budgets are Rs920 billion short of the originally proposed targets for the next financial year, which a government body had approved on June 1. But these are equal to this financial year’s actual expenditure.
The NEC has approved Rs2.218 trillion worth of Annual Development Plans (ADPs) after the provinces agreed to freeze their expenditure at this fiscal year’s actual levels, Planning Minister Ahsan Iqbal said while talking to reporters after the meeting.
Prime Minister Shehbaz Sharif chaired the NEC meeting that also approved a trimmed Rs1 trillion Public Sector Development Program (PSDP). This was Rs126 billion less than the originally approved bill.
Apart from Punjab, the chief ministers of all other provinces attended the meeting. Prime 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 have agreed to provide grants to the federal government for the next financial year and thanked the chief ministers for their “consultations and assistance on all issues”.
The federal government had demanded Rs1.2 trillion from the provinces for the next fiscal year 2026-27 to meet additional funding requirements for defense and water sector projects. Iqbal said the mechanism to get the money from the provinces and its processing was being finalized by the finance ministry.
The Prime Minister also called International Monetary Fund (IMF) Managing Director Kristalina Georgieva and briefed her on the new fiscal arrangement between the Center and the provinces.
Under this arrangement, the provinces would provide a one-time grant to the federal government that would be used during the next fiscal year to meet urgent funding needs. Shehbaz said Georgieva “was extremely grateful for Pakistan’s sincere efforts”.
The Center would keep most of the additional money that the provinces will get under the National Finance Commission (NFC) in the next financial year. This would effectively bring the province’s share down to far less than 50% for at least one year against 57.5% of the total divisible pool.
Iqbal said the agreement with the provinces was conditional on the actual tax collection by the Federal Board of Revenue (FBR) in the next financial year.
For the next fiscal year, the FBR’s fiscal target is Rs15.264 trillion. If the provinces get around Rs 7.5 trillion in this financial year and their share remains unchanged in the next financial year, it would almost amount to 49% of the total FBR collection. But after excluding Balochistan, three provinces can actually get about 42% of the divisible pool.
The FBR has missed its two fiscal year fiscal targets by staggering over Rs 2.2 trillion, more than double the amount sought by the Center from the provinces in grants, also for the first time in recent history that provinces are giving money in grants.
The cumulative development envelope of Rs 3.2 trillion is Rs 1.05 trillion or 25% less than the development budgets approved by the Annual Plan Coordination Committee (APCC) a few days ago.
Out of this sum, the federal government’s contribution is Rs126 billion and Rs920 billion will be provided by the provincial governments – assuming the FBR would meet its next financial year target.
Ahsan Iqbal said that Punjab’s development budget has been approved at Rs 749 billion, which is Rs 701 billion less than the figure approved by the APCC. Iqbal said Sindh’s revised outlay is Rs 706 billion, which is Rs 110 billion less than the initially proposed cap.
The Planning Minister said Khyber-Pakhtunkhwa (KP) development expenditure is Rs455 billion, which is Rs109 billion less than approved earlier by the APCC. Balochistan’s outlay is Rs 308 billion, which remains unchanged.
The Prime Minister stated that the Center held consultations with the provinces on all issues with extreme seriousness and “we took decisions in the best interest of Pakistan”. He noted that the “biggest challenge” the country faced was “strengthening our defenses,” especially against terrorism.
“The whole nation, especially KP and Balochistan, as well as the law enforcement agencies and the 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 unwilling to permanently change the shape of the divisible pool and have so far deferred the matter by giving money to the Centre.
Shehbaz also said Pakistan needs to “introduce incentives” to accelerate GDP and move beyond macroeconomic stability. He stressed that the next phase requires quick 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 should now be on increasing exports and productivity.”
The Planning Minister termed bureaucracy as the biggest obstacle in Pakistan’s development. “The federal bureaucracy needs to be changed as it is meant to maintain law and order and collect taxes with a colonial 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 GDP, Shehbaz said, “It is important to introduce incentives that drive export growth, revive manufacturing and transform the economy”.
Financial goals
The NEC approved 4% economic growth and 8.2% inflation targets. It approved a growth target of 3.8% for the agriculture sector for the 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), along with 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%, supported by better results in wholesale and retail trade; transport, storage and communication; and financial services. The NEC has approved a savings target of 14.3% of GDP, while the investment target is set at 15% of GDP.
The target for the current account deficit for the next financial year has been approved at 0.7% of GDP or $3.6 billion – far higher than this year’s projected deficit of $1 billion. The NEC approved new external targets which are insignificant compared to this year’s results.
The export target is set at $32.8 billion – up just 8.4% on this year’s estimated exports of $30.3 billion. Imports are expected to cross $70 billion next fiscal year – an increase of 5.6% over this year. As a result, the trade deficit for the next financial year is targeted at $37 billion, which will be largely filled on the back of remittances, which are expected 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 the NEC had become a ceremonial forum for merely approving development goals, but it has now been decided to hold its quarterly meetings. He said any change in the PSDP due to contributions from the provinces could also require the NEC’s second stamp of approval.
He said the NEC has also approved 11 initiatives to boost low investment; low exports and solve the structural problems in the economy that hold back growth and development. These are mostly related to exports, resource mobilization, productivity, the agricultural value chain and the human value chain.
