Constitution & IMF’s benchmarks

The federal finance secretary has told a parliamentary committee that the International Monetary Fund (IMF) wants 174 legislative amendments under Pakistan’s 37 month US$7 billion Extended Fund Facility (EFF) programme. He has also said that Parliament alone can approve them. Both statements deserve to be taken seriously.

A legislature presented with a list negotiated elsewhere, under a disbursement deadline, may possess the formal power to vote but little practical room to deliberate. What precisely are these amendments? Which among them were proposed by Pakistan? Which are essential to a balance of payments programme? Their texts and reasons must be public before anyone calls their passage “reform”.

Reported subjects range from taxation and electricity distribution companies to the sovereign wealth fund, sugar policy and Islamic banking. The National Fiscal Pact with the provinces is also among the programme commitments. The committee has asked for measurable results, costs and timelines, and questioned the treatment of provincial surpluses, privatisation assets and consumer burdens. Those are the questions Parliament should have asked before commitments were made.

A tally of 174 does not, by itself, mean 174 constitutional amendments; the government must publish a provision-by-provision inventory so that ordinary statutory changes are not confused with alterations to the federal compact.

That compact is the 1973 Constitution. Adopted after the dismemberment of the country, it remains our hard-won consensus on how different peoples can inhabit one federation. Its Senate, provincial legislatures, Council of Common Interests (CCI), National Economic Council (NEC) and National Finance Commission (NFC) were designed to make disagreements negotiable.

The Eighteenth (Constitutional Amendment) Act of 2010 renewed this bargain through parliamentary consensus. Article 239 prescribes the demanding procedure for a constitutional amendment: a two-thirds majority of the total membership of each House.

A change to a province’s boundaries needs its assembly’s two-thirds approval as well. These safeguards are commitments to consent, not procedural inconvenience. No financial institution and no federal negotiating team can substitute its own timetable for that constitutional process.

The NFC is a particular target of convenient arithmetic. Islamabad says too much revenue goes to the provinces while debt service and defence remain with the centre. The provinces ask why federal expenditure did not shrink after functions were devolved, why federal authorities retain taxes and levies outside the divisible pool, and why districts receive so little power or money.

These are real questions. Calling Article 160(3A), which protects the aggregate provincial share against reduction in a later award, an obstacle to “stabilisation” answers none of them. The World Bank’s recent fiscal federalism study identifies the federal failure plainly: higher transfers after the Seventh NFC Award were not matched by lower federal spending, and revenue collection stagnated.

It also documents weak provincial tax effort, spending tilted towards salaries and pensions, and the neglect of local governments. Its published account presents reform options within the existing constitutional framework and calls for dialogue. That is a more useful starting point than treating the Bank’s analysis as a warrant to confiscate provincial fiscal space. Fiscal diagnosis does not confer constitutional authority.

Provincial governments cannot hide behind autonomy either. They must tax high agricultural incomes effectively, make property records credible, publish service outcomes and stop absorbing new resources into administration. Education, health, water and sanitation have to reach people, not merely budget documents.

Article 140A requires elected local governments with political, administrative and financial responsibility. Provincial Finance Commission awards, predictable transfers and meaningful own-source revenues must give that requirement life. The remedy for poor provincial performance is public accountability and deeper devolution, not another round of centralisation in Islamabad.

There is also a question of honest accounting. When petroleum sales tax is kept at zero and the petroleum levy rises, revenue that would have entered the sales-tax divisible pool is replaced by a receipt retained at the centre. The provinces’ protected percentage of the pool may remain unchanged while the pool itself is starved.

We have repeatedly argued that the economic incidence and constitutional consequences of this choice should be disclosed alongside every federal budget. Provincial cash surpluses extracted to satisfy an IMF target cannot be advertised as a durable solution while the underlying assignments of expenditure and revenue remain unresolved.

The Finance Division now describes the IMF programme as a “whole-of-government” exercise and acknowledges that agricultural taxation belongs to the provinces. Its own description reinforces the need for constitutional discipline. A finance secretary may coordinate negotiations, but cannot bargain away a provincial legislature’s competence.

A provincial executive may discuss a fiscal pact, but cannot bind its assembly to a hidden text. Parliament may amend an ordinary law, but cannot enact a constitutional change by disguising it as a technical condition in a finance bill.

Nor should Pakistan’s difficulties be blamed entirely on foreign lenders. Successive governments chose short cuts: taxing transactions instead of income, offering privileges to powerful sectors, borrowing for current expenditure and retaining devolved functions. They return to the IMF because these choices have made them dependent.

The creditor did not invent our failure to enforce agricultural income tax or create effective municipal governments. Its influence grows when elected representatives surrender their own responsibility. The answer is to recover that responsibility, not to pretend the economy needs no financing.

The IMF itself said this month that its new approach should favour fewer, deeper reforms tailored to a country’s capacity and ownership. How does a demand reportedly involving 174 legislative changes meet that standard?

The government and the Fund should distinguish binding structural benchmarks from negotiating proposals and domestic initiatives. They should explain the macroeconomic purpose, implementation cost and social impact of each. If a measure changes the balance between the federation and its units, the proper forum is the CCI, the NFC or Parliament, as the Constitution requires; a staff-level agreement cannot be the final word.

Start by publishing the complete list of amendments, the National Fiscal Pact, every relevant memorandum and the associated impact assessments. Give the standing committees time to call provincial finance ministers, independent economists, tax practitioners, businesses, workers and local-government representatives.

Place each proposed law before the competent legislature as a separate, intelligible measure. Publish the proposed provincial surpluses together with the federal expenditure cuts and revenue measures on which they depend. The Article 160(3B) implementation reports must be laid before Parliament and provincial assemblies, as the Constitution already commands.

Then convene a genuine NFC process. It can reconsider horizontal weights, fiscal need, provincial tax effort and service delivery while observing the constitutional floor on the provinces’ collective share. Federal ministries operating in devolved fields should be audited and rationalised.

Sales taxation and administration can be harmonised through consent, without extinguishing provincial taxing powers. Restore the NEC and CCI as working forums. Give elected cities and districts the funds and authority to deliver services and face voters. Such reforms require political courage because they confront patronage at every level.

Pakistan needs investment, external stability and a tax system that can pay for public services. A lender can supply finance and technical evidence; it cannot supply the consent on which a federation survives.

The 1973 Constitution is the last credible framework for holding this country together. Amend it, if necessary, after open public debate and agreement among its elected representatives and federating units. To let loan reviews set the terms of that bargain would be a political failure no tranche could repair.

Copyright Business Recorder, 2026