Provinces request a review of the National Finance Commission and agricultural taxation.

On Wednesday, the National Economic Council approved an expanded national development budget of Rs3.9 trillion, as certain provinces requested a reassessment of the National Finance Commission and the reconsideration of the agriculture income tax matter with the International Monetary Fund.

The NEC’s approval of the federal Public Sector Development Programme 2025-26 reflects the government’s political aims to placate friends and allocate increased funding for road infrastructure. It sanctioned diminished budgets for Pakistan’s space and atomic energy initiatives, health, and education, while augmenting funding for Sindh-specific programs and parliamentary schemes.

The National Economic Council, chaired by Prime Minister Shehbaz Sharif, established an economic growth target of 4.2% and an inflation rate of 7.5% for the fiscal year 2025-26. The NEC is the country’s constitutional authority responsible for approving macroeconomic and development policies.

The NEC articulated worries regarding the burgeoning population and demonstrated determination to identify a solution, since the economic growth in the current fiscal year nearly matched the population growth rate.

The NEC sanctioned Rs1 trillion for the federal Public Sector Development Programme and Rs2.9 trillion for the province yearly development plans. The cumulative budgets of Rs3.9 trillion disregard the severe fiscal realities, as the federal government has even reduced many essential budgeted allocations to accommodate more politically motivated development expenditures.

The NEC document indicates that the budget for discretionary spending on parliamentary initiatives has been approved at Rs70 billion, in contrast to the initial intention of Rs50 billion. The federal government augmented the expenditure on provincial development projects from a recently allocated Rs93.4 billion to approximately Rs106 billion.

The room has been established by further diminishing expenditures on health and education from the amount sanctioned by the Annual Plan Coordination Committee on Monday. The Higher Education Commission’s budget is significantly decreased to Rs39.4 billion, while the Ministry of Health’s allocation is slashed to Rs14.3 billion. The budget for power sector projects was decreased from the previously intended Rs104 billion to Rs90 billion to accommodate political initiatives. The allocation for the water sector has been raised to Rs133 billion, up from the previously anticipated Rs119 billion.

In comparison to the budget sanctioned by the APCC on Monday, the Space & Upper Atmosphere Research Commission’s (SUPARCO) budget has been diminished from Rs24.2 billion to Rs5.4 billion, while the Pakistan Atomic Energy Commission’s budget has been curtailed from Rs4.7 billion to Rs781 million.

A committee, including Deputy Prime Minister Ishaq Dar and the Prime Minister’s political advisor Rana Sannuallah Khan, has finalized the budget.

The substantial funding for provincial projects violate agreements made to the IMF about the reduction of federal expenditures on such initiatives.

Sources indicated that several NEC members deliberated on the farm sector’s minimal growth of only 0.6% in the current fiscal year and advocated for a revision of economic policies, particularly concerning the elevated cost of inputs. The meeting attendees indicated that Sindh requested a review of the agricultural income tax and to address it with the IMF.

Finance Secretary Imdad Ullah Bosal refrained from commenting on whether the Ministry of Finance will address the issue with the IMF.

The four provincial governments have enacted the new agricultural income tax regulations; however, enforcement has not yet commenced. The likelihood that the IMF will consider such a request is minimal.

The Khyber Pakhtunkhwa government addressed the delay in the reopening of the NFC award, as the province administration seeks an increased share due to the merging of the tribal districts. The Prime Minister guaranteed the K-P government that the NFC meeting would be convened in August.

The government has decreased the allocation for the K-P merged districts from Rs70 billion to Rs65.4 billion, as agreed by the APCC on Monday.

The Punjab government addressed the matter of increased taxation on agricultural machines.

The NEC sanctioned Rs2.86 trillion for the four provincial governments, with Punjab receiving the largest allocation of Rs1.2 trillion. Khyber-Pakhtunkhwa will allocate Rs417 billion. The Sindh government intends to allocate Rs995 billion, while the Balochistan government proposes Rs280 billion for development initiatives.

The projected development allocations by the four provinces exceed the IMF’s plan by around Rs860 billion. This indicates that either the provinces will fail to utilize the full allocations or the IMF cash surplus objective would remain unachieved.

The NEC evaluated the execution of the annual plan for the current fiscal year and sanctioned the economic objectives for the forthcoming fiscal year. A review of the execution of the PSDP for the current fiscal year was conducted, noting the low utilization of funding.

The NEC reviewed the status report of the CDWP and the schemes sanctioned by the CDWP and ECNEC over the past year. The NEC sanctioned the release of the 13th Five Year Plan 2024-29 and endorsed the URAAN Pakistan Implementation Framework.

Exports are anticipated to reach $35.3 billion, but foreign remittances are forecasted to surpass $39.4 billion in the forthcoming fiscal year. Imports are anticipated to reach $65.2 billion, while the current account deficit is estimated at $2.1 billion for the forthcoming fiscal year.

Presently, 1,071 development projects, with a cumulative expenditure of Rs13.4 trillion, are in progress. The completion of these projects necessitates an additional Rs10.2 trillion, and the planning ministry anticipates that it will take over a decade to finalize them all.

The NEC also authorized the publication of the Five-Year Economic Plan 2024-29. The NEC was informed that the 13th Five-Year Plan has been revised following talks with stakeholders and is prepared for publication.

The five-year plan aims for balanced regional and equitable growth, enhancing the economy’s export focus and fostering a vibrant SME sector. – social protection and poverty alleviation – enhancement of human resource quality – transition to a knowledge economy – adaptation and mitigation strategies for climate change.

The Prime Minister had launched ‘URAAN Pakistan’ on 31st December, 2024 and the NEC on Wednesday approved its implementation framework.