ISLAMABAD:

AJK PM offers fresh talks amid clashes

Pakistan’s head of state and head of government met on Monday to resolve differences over the new budget, as Khyber-Pakhtunkhwa’s finance adviser revealed that the Federation wanted to freeze new provincial shares at this year’s level to retain additional Rs1.2 trillion.

Muzzammil Aslam, the Finance Adviser to the K-P Chief Minister, also said that the forum of the National Economic Council (NEC) cannot be used to retain provincial shares and any such move would require legal cover.

The highest-level huddle between President Asif Zardari and Prime Minister Shehbaz Sharif happened the day the government, for the third time postponed the meeting of the NEC – the body mandated to approve development budgets and national macroeconomic framework.

The Finance Ministry, too, struggled to secure the nod of the International Monetary Fund (IMF) for the new arrangement to retain the provincial shares under the National Finance Commission (NFC) Award by getting the NEC stamp. The Finance Ministry on Monday considered various options to convince the IMF, including the possibility of a call to the managing director of the global lender.

Prime Minister Shehbaz met with President Zardari, whose party rules two provinces, to seek his support for making the new budget viable. The Centre is betting on taking out Rs1.2 trillion from the shares of the provinces under the NFC for the fiscal year 2026-27.

This has delayed the announcement of the budget and there was extreme uncertainty in the country over lack of clarity on the budget dates.

According to a statement issued by the Presidency, Prime Minister Shehbaz met with President Zardari along with his team. “The meeting discussed the economy, the budget for the next fiscal year, the recent elections in Gilgit-Baltistan, the situation in Azad Kashmir, law and order, and matters of national importance”, stated the Presidency.

It added that while discussing the budget proposals and public relief, the president emphasised prioritising public welfare, provincial rights, and economic stability in the federal budget. The president directed that full efforts be made to align the growth rate and public welfare schemes in the upcoming budget.

The discussions were taking place around the Federation’s desire to cut a pie of Rs1.2 trillion from the shares of the four provinces to meet expenses on strategic nature initiatives and providing tax relief that is not possible within the limited federal fiscal space.

While addressing a press conference after meeting with the federal government, Muzzammil Aslam, the Finance Adviser to the K-P Chief Minister, said that there was extreme level of uncertainty in the government over the next year’s budget.

He said that there was no consensus between the provinces and the Centre on Rs1.2 trillion deductions and distribution of the federal development budget and between the IMF and the Finance Ministry over the new budget.

The NEC’s meeting was postponed on Monday without giving a reason and we were not sure whether it would happen on Tuesday (today), said Aslam. He added that because of lack of consensus over the Centre’s demand for additional resources, it was not sure that the budget would be announced on June 10th.

“Everything is fluid, uncertain and no one has the clarity,” said Aslam.

He disclosed that the federal government has proposed to freeze the provincial shares in the NFC at this year’s actual transfers. He said that the additional roughly Rs1.2 trillion that the four provinces will get in the next fiscal year due to increase in federal tax collection is proposed to be retained by the Centre.

For this fiscal year, the government had indicated Rs8.2 trillion transfers to the provinces. But due to extremely poor performance of the FBR the four provinces may get Rs7.5 trillion. Aslam said that for the next fiscal year, the federal government wanted to freeze the provincial shares at this year’s level by getting the endorsement of the provinces through the NEC.

To a question, Aslam said that the “NEC is not the forum to deduct provincial shares”. The NEC is a constitutional body that is chaired by the prime minister with all provincial chief ministers in attendance. K-P’s advisor said that it was not clear whether the provincial chief minister would attend the NEC meeting.

He said that the Centre has demanded that four provinces should contribute as per their shares in the NFC, with K-P’s share around Rs180 billion. Initially, the federal government had demanded Rs1.7 trillion from the provinces but later on it downward adjusted the demand.

Punjab’s contribution may stand around Rs650 billion, Sindh Rs300 billion, K-P Rs180 billion and Balochistan Rs110 billion.

Aslam said that the additional money has been demanded for “some strategic purposes” and former prime minister Imran Khan would not even refuse to contribute. But even if all the provinces agree to give up their additional shares, technically the money cannot be given on the basis of any NEC decision, Aslam said.

He said that the Rs1.2 trillion has been demanded over and above the provincial cash surpluses and this would turn their budgets into deficits.

The Rs1.2 trillion is almost half of the Rs2.2 trillion worth of revenue shortfall that the FBR faced in two fiscal years – the poor performance that has now thrown the federal government at the mercy of the provinces and also led to increasing petroleum levy to Rs116 per liter in petrol.

Government sources said that the Finance Ministry also took up the issue of getting additional resources from the provinces with the IMF through the NEC. They said that the IMF was reluctant to accept the proposed mechanism of the NEC to deduct the provincial shares. They said that the IMF’s endorsement was important before agreeing to this mechanism.

The government sources said that the Rs1.2 trillion are being demanded for defense, funding strategic water projects, giving tax relief to the corporate sector and reducing withholding taxes on the property transactions. Some of these measures cannot be taken within the federal fiscal space.

The Finance Ministry did not respond to questions whether it was correct that Pakistan has shared its position on seeking Rs1.2 trillion from provinces through the NEC mechanism. The ministry also did not comment whether the IMF agreed to this arrangement and whether the money that was demanded from provinces was only for defense purposes or will also be used to give tax relief.

Aslam again complained that his province is marginalised and only Rs2.3 billion are given out of the Rs1.12 trillion next year’s budget. He said that the federal allocation under the Accelerated Implementation Programme is also reduced by Rs10 billion to Rs56 billion.