EDITORIAL: While technically there is no delay in the presentation of the budget to parliament, with 16 June the last day of presentation that provides for the two weeks’ debate as part of the rules of business, yet the controversy within the government allies is unprecedented.
This is attributable to government proposals that violate the constitution: being allowed to retain 1 to 1.2 trillion rupees from the provincial share of the divisible pool (the constitution mandates that provincial share in the NFC award cannot be less than the share in the previous award) for strategic spending (not defined) and federal Public Sector Development Projects (PSDP).
The Pakistan People’s Party represented by the party Chair Bilawal Bhutto-Zardari and President Zardari with the PML-N led by Prime Minister Shehbaz Sharif have agreed to form a technical committee to discuss and settle on the federal government’s demand for an additional 1.2 trillion rupees from the divisible pool taxes.
Background discussions suggest that the government intended to pass the appropriate constitutional amendment that would allow for a reversal of the provincial share in the National Finance Commission (NFC) award but was unable to secure a two-third majority for this proposal in parliament.
It is unclear whether the government shared this specific measure with International Monetary Fund’s (IMF’s) recent mission, concluded on 20 May, and that focused on “recent economic developments, reform implementation, and the budget strategy for fiscal year (FY) 2027.”
However, it is unlikely to be a source of concern to the Fund, given that it has long advocated a revision of revenue sharing (especially after the seventh NFC award in 2010 that allowed provincial share of 57.5 percent in the divisible pool). Be that as it may, any change in the budget would have to be shared with the Fund and as has been evident in the past three Fund programmes - notably the 2019 Extended Fund Facility programme, the 2023 Stand By Arrangement and the ongoing 2024 EFF - any deviation from the agreed harsh upfront conditions would automatically lead to a delay in the next staff level agreement, which is critical for a tranche release; and may well disable the government from securing almost 10 billion dollar rollovers from two friendly countries for another year - money parked as foreign exchange reserves with the State Bank of Pakistan that, in turn, not only provides cover for imports but more importantly provides the key ingredient to sustaining the rupee-dollar parity.
This retention of revenue would be over and above the provincial surplus that reportedly all provinces have agreed to with the IMF for next fiscal year. Those who suggest the 1.2 trillion rupee additional ask by the federal government be absorbed by the provinces through raising the provincial surplus should realize that the current fiscal year’s provincial surplus agreed is 1.4 trillion rupees, and an additional 1.2 trillion rupees would raise the surplus to 3.1 trillion rupees, which would be profoundly or extremely challenging.
At present, the budget proposals with detailed allocations and revenue sources are naturally not in the public domain or purview; however, one would hope that a definition of ‘strategic spending’ be released and the specific additional projects in the PSDP be highlighted (one would hope the inordinate focus on construction of roads be shifted to water conservation measures including reservoirs).
And, there is a need to present realistic figures unlike last year when the budget documents understated the mark-up on the assumption that policy rate would decline (an assumption that failed to materialise).
The scheduled Monetary Policy Committee meeting is on Monday the 15th of June and there are expectations of a rise in the policy rate, that would raise the mark-up allocation in the budget, given that in May core inflation rose by one percentage point and Consumer Price Index by 0.8 percent.
Ahsan Iqbal, the Planning Minister, has indicated that the budget is likely to be presented on 12 June; however, that would depend on reaching a consensus.
While the hybrid system of government in place does have the capacity to bulldoze the revisions through, yet this may generate a major political fissure that would not be in the country’s economic interests.
Copyright Business Recorder, 2026
Comments