ISLAMABAD: Prime Minister Shehbaz Sharif has established a high-level political committee to monitor the execution of the National Fiscal Pact, aiming to foster consensus on debt sharing between the federation and provinces and coordinate development of critical water infrastructure amid rising tensions with India.
The eight-member committee will be co-chaired by Deputy Prime Minister Ishaq Dar of PML-N and Pakistan Peoples Party Chairman Bilawal Bhutto Zardari, according to the Prime Minister’s Office. Other members include federal ministers of defence, planning, finance, economic affairs, law, and the attorney general.
Notably, the opposition party Pakistan Tehreek-e-Insaf (PTI), which governs Khyber-Pakhtunkhwa, was excluded from the panel, raising concerns about potential challenges in achieving consensus on fiscal targets agreed with the International Monetary Fund (IMF).
Signed in September 2024, the National Fiscal Pact seeks to realign expenditure responsibilities and harmonize taxation policies between federal and provincial governments under the 18th Constitutional Amendment. However, implementation has been slow, with provinces like Sindh hesitant to take on new expenditure obligations.
The committee’s mandate includes overseeing revenue reforms such as aligning agricultural income tax with the Federal Board of Revenue’s framework, transitioning the services GST to a negative list, creating a common property tax framework, and enhancing tax compliance.
It will also monitor spending reforms, including increased provincial contributions to higher education, social protection programs like the Benazir Income Support Programme, and phasing out provincial support price regimes. Governance measures under review include expansion of the electronic Pakistan Acquisition and Disposal System (e-PADS), adoption of green budget tagging, digitalization of government payments, and coordination on anti-money laundering efforts.
Debt servicing costs are projected to reach Rs8.7 trillion in the new fiscal year, nearly half the budget, with federal officials considering transferring part of this burden to provinces, though constitutional provisions do not obligate provinces to share debt servicing.
Given India’s ongoing obstruction of Pakistan’s water share under the Indus Basin Treaty, the panel will also focus on accelerating development of water storage facilities.
The Finance Division will serve as the committee’s secretariat and is tasked with sharing proposals related to federal and provincial budgets within 10 days. The committee will act as a platform to resolve implementation challenges and build consensus among stakeholders.
The IMF’s latest staff-level report highlights progress on procurement reforms, noting increased use of e-PADS across federal and provincial agencies and recommending frameworks for provincial investment of cash surpluses in government securities.
