Fiscal consolidation and social sector expansion: Punjab govt maintains balanced approach

LAHORE: Despite fiscal challenges and persistent structural rigidities, the Punjab government has maintained a balanced approach between fiscal consolidation and social sector expansion.

As per Punjab budget 2025-26 document, the NFC transfers and Provincial Own-Source Receipts for FY 2025–26 are estimated at Rs. 4,890.4 billion, driven by a 10.3% increase in Federal Divisible Pool transfers and a projected 13.3% increase in tax collection by Punjab Revenue Authority, reaching Rs. 340 billion. The province’s Own Source Tax Revenue is estimated to grow 11.2%, underpinned by reforms in Urban Immovable Property Tax, Agriculture Income Tax alignment with FBR, and transition to a negative list regime under Punjab Sales Tax on Services Act.

Punjab’s fiscal framework has also been reinforced through the continuation of Public Financial Management (PFM) reforms. Following the enactment of the Punjab PFM Act, 2022, the province institutionalized several key reforms in FY 2024-25, including elimination of circular commodity debt, introduction of a new pension framework, operationalization of the Cash Management Fund, the Grant-in-Aid Policy, and a Medium-Term Debt Strategy, to name a few. The Parametric Pension reforms are projected to reduce accrued pension liabilities to Rs. 6.385 trillion - down from an otherwise estimated Rs. 11.883 trillion - while the Defined Contribution Scheme now applies to all new entrants, introducing a funded model and easing long-term fiscal pressure, the budget document reveals.

It may be added that the Grant-in-Aid Policy enforces ceilings, eligibility criteria, and performance-based disbursements to enhance accountability. The Cash Management Fund allows productive investment of idle balances, supporting non-tax revenue and surplus targets. The Medium-Term Debt Strategy guides prudent borrowing, prioritizes concessional finance, and ensures compliance with debt ceilings under the PFM Act.

Collectively, these reforms mark a decisive shift toward fiscal sustainability, transparency, and rules-based public financial management.

Copyright Business Recorder, 2025