Provinces don’t set aside Rs1.2tr surplus envisaged by Centre in budget

It indicates that a fiscal gap of Rs448 billion has surfaced on the fiscal framework

By Mehtab Haider
June 22, 2024
An employee counts Pakistani rupee notes at a bank in Peshawar, on August 22, 2023. — Reuters

ISLAMABAD: The federal government’s budget for 2024-25 is in the doldrums as the provinces have generated a revenue surplus of Rs765 billion against the Centre’s envisaged target of Rs1,213 billion.


It indicates that a fiscal gap of Rs448 billion has surfaced on the fiscal framework and the IMF might take up before finalising fresh deal under $6-8 billion Extended Fund Facility (EFF) after approving the budget 2024-25 aligned with the Fund conditionalities.

Pakistan and the IMF high-ups are engaged in virtual parleys on regular basis and both sides discussed the presentation of the budget for 2024-25 even on second day of Eidul Azha. In this ongoing week, both sides held different rounds on different sectors of the economy especially on revenue and expenditure sides.

Under the IMF programme, the government wants to restrict the overall budget deficit at Rs7,283 billion, equivalent to 5.9 percent of the Gross Domestic Product (GDP) for the next financial year 2024-25 for having fresh deal of $6 to $8 billion under Extended Fund Facility (EFF).

For achieving the desired target of overall fiscal deficit, the budget documents for 2024-25 envisages that the provinces would throw a revenue surplus of Rs1,213 billion, close to 1 percent of GDP, for curtailing the overall deficit at 5.9 percent of GDP for the next fiscal year against revised estimates of 7.4 percent of GDP for the outgoing fiscal year ending on June 30, 2024. As all the four provinces have presented their budgets for 2024-25 and official figures showed that Punjab threw a surplus of Rs640.83 billion, Sindh zero surplus, KP Rs100 billion and Balochistan Rs25 billion. In totality the provinces threw a revenue surplus of Rs765 billion against the envisaged target of Rs1,213 billion, surfacing a gap of Rs448 billion.

However, when contacted Muzammil Aslam, KP’s Adviser on Finance and inquired about revenue surplus, he replied, “Most likely the surplus amount is not final. Provisionally, I can assure Rs75 billion at least,” he added.

For federal budget deficit, the government estimated that it would be standing at Rs8,500 billion for the next fiscal year but then the provinces would throw a surplus of Rs1,213 billion in order to slash the overall fiscal deficit of the country to the tune of Rs7,283 billion, equivalent to 5.9 percent of GDP for the next fiscal year 2024-25 that would end on June 2025. The government envisaged primary surplus of 2 percent of GDP for the current fiscal year and showed in the official documents against the Finance Minister’s speech whereby he indicated that the primary surplus envisaged at 1 percent of GDP for the next fiscal year compared to revised estimates of Rs402 billion as primary deficit for the outgoing fiscal year. Now the IMF wants to place it as mandatory to convert this primary deficit of Rs402 billion in the outgoing fiscal year to a surplus of Rs1,241 billion at least in the next budget or 1 percent of GDP. If the government preferred to keep primary surplus on higher side of 2 percent of GDP then it required Rs2,492 billion for achieving highly ambitious target.

This scribe contacted Dr Khaqan Najeeb, former adviser Ministry of Finance, he said that the federal fiscal framework is broken. The remaining funds with the federal government after transferring 57.5 percent of federal revenues to provinces barely cover the markup and debt expenses of Rs9,775 billion in the proposed budget. All other current and development expenditure are on borrowed money. He identified the proposed growth of nearly 40 percent in FBR taxes and the need for provinces to cough up a cash surplus of 1 percent of GDP as key risks. A read of the 4 provincial budgets appears to be pointing to a shortfall in generating the Rs1,200 billion cash surplus. This can affect the reduction in the overall fiscal deficit. Traditionally, the majority of the cash surplus flows from Punjab and Sindh, but Sindh has not generated any surplus whereas Balochistan, is just delivering Rs25 billion. Provinces have hiked their spending with little focus on direct taxation. The dialogue on the NFC or a fiscal pact is important given this constellation, he concluded.