- The charter focuses on a unified financial network between the center and the provinces.
- The Minister of Finance described the agreement as “a step in the right direction.”
- The move aims to increase tax revenues from the agricultural sector.
ISLAMABAD: Finance Minister Muhammad Aurangzeb said there will be no immediate change in the National Finance Commission (NFC) regarding the fiscal agreement between the federal and provincial governments. News reported on Thursday.
“In the first phase, there will be no changes in the NFC award for the time being but fiscal space will be created by transferring projects of regional nature from the Public Sector Development Program (PSDP) to the federal units,” the Finance Minister said. Speaking to journalists after the launch of the Pakistan Economy Dashboard.
This statement comes on the heels of the Finance Minister’s previous statements on the National Fiscal Compact, which aims to address Pakistan’s external financing gap by harmonizing regional taxation and enhancing revenue collection.
“We will sign the National Financial Compact with the provinces, which will help us address the external funding gap,” he said last month.
The fiscal agreement aims to create a unified fiscal framework between the federal government and all four provinces, with a focus on expanding tax revenues from the agricultural sector, increasing provincial revenues and reorganizing federal expenditures.
Expanding on this, Aurangzeb said the NAP will focus on three key areas, including increasing tax revenues through close coordination such as the imposition of agricultural income tax (AIT) by provinces, and shifting expenditures such as transferring regional nature development projects to federal units. Of the private sector development project and thirdly, improving governance through collaborative efforts.
“For example, expenditure related to the Higher Education Commission (HEC) will be transferred to the provinces. The Benazir Income Support Program (BISP) has not yet been implemented as discussions are still ongoing,” he said while speaking to a select group of reporters afterwards. He referred to the launch of Pakistan’s economic dashboard.
He added that the NFP was a step in the right direction. The minister said the federal government’s private sector development budget was Rs1,100 billion, but private sector development projects in the two largest provinces were more than Rs2,000 billion.
However, he expressed hope that after projects were transferred to the provinces, fiscal space would be created but was reluctant to share any projected numbers.
Earlier, in his speech on the launch of the ‘Pakistan Economic Dashboard’, the Minister said: “Pakistan’s economy is in a good position and there is a need to leverage this position to achieve continuity.”
He stated that stability has been achieved and now the focus will be on the growth path. He said debt management had rejected offers to provide borrowing in recent weeks, conveying a clear message that the government was no longer a desperate borrower.
He said that inflation fell more than expected and the government was no longer desperate to borrow. He said banks will have to go out and figure out borrowing from the private sector, which is known to be the engine of growth. It is not just the interest rate, but it is the KIBOR (Karachi Interbank Interest Rate) rate that plays an important role in increasing borrowing for the private sector.
The minister said there was a need to leverage the hard-won macroeconomic stability to achieve economic growth on a sustainable basis.
“We will continue to undertake structural reforms to improve the tax-to-GDP ratio,” he said, adding that there was a need to avoid a populist approach.
The minister also noted that it was a great opportunity and described it as a “defining moment” for the country, as it could become the last program of the International Monetary Fund. It depends on how the country implements this reform agenda.
He said digitization at the Federal Bureau of Revenue (FBR) has not been successful so far due to lack of data consolidation. He said the lesson learned through digitization in the FBR is that for detection of new filers in the tax system, the dots have not been connected properly even though there are all kinds of data flow.
He said it was a good step as the government had created a single window to share a collaborative approach to sharing economic and social sector data over the past 50 years.
Ali Parvez Malik, Minister of State for Financial Affairs, said that the IMF program under the Extended Fund Facility will create a solid platform for improving economic fundamentals. He said the economic dashboard would help achieve inclusive growth, overcome the twin deficits and pull the country out of the boom-and-bust cycles.