ISLAMABAD, Nov 22: The four provincial governments have achieved an accumulated budget surplus of over Rs121 billion in the first quarter (July-Sept) of the current fiscal year – higher than their annual target – to help the centre meet fiscal targets set by the International Monetary Fund.

In its budget, the federal government had set a target of Rs23bn to come from provincial surpluses which was increased to Rs117bn when the government signed an agreement with the IMF.

According to the finance ministry’s data, provinces achieved an accumulated fiscal balance of Rs121.6bn in the first three months of the fiscal year. The highest share of Rs47.31bn cash balance came from Punjab, followed by Rs33.08bn from Sindh, Rs23.4bn from Balochistan and Rs17.8bn from Khyber Pakhtunkhwa.

Official sources said that major savings from the provinces appeared in the shape of reduced transfers under the Public Sector Development Programme. This is evident from the fact that provincial PSDP expenditure in the first three months of the current year was contained at Rs34.6bn compared with Rs38bn in the same period last year. The drop attains significance because it happened despite the fact that overall allocations for the development programme for the current year had been set about 40 per cent higher than the last year.

Of the total provincial cash surplus, an amount of Rs92bn was used to finance the country’s consolidated fiscal deficit while about Rs29bn was retained by the provinces.

The centre had been contemplating negotiating a binding agreement with the provinces to have statutory limits on their fiscal balances and enhanced limits on provincial borrowings to help contain the consolidated deficit. However, provinces reluctantly agreed to the extent of providing surpluses as a voluntary and interim arrangement instead of institutionalising it to protect their rights under the National Finance Commission Award.

Officials in the federal government have welcomed provincial facilitation under a voluntary scheme, but they insist there is a need to link any future increase in provincial share with their fresh taxation measures so that their share in consolidated taxes goes up from the current dismal contribution of about 6pc of total revenues.

Given the fact that the current NFC Award has about two more years to expire, the centre was able to secure cooperation from the provinces outside the NFC.

As part of discussions with the IMF under its bailout package, the government had given an undertaking that revenue sharing system would be reformed to increase provinces’ incentives to rely less on federal transfers and more on their own revenue-raising efforts. Agriculture, real estate and some services are still outside the effective tax net falling within the authority of the provinces.