ISLAMABAD: On Punjab’s opposition, the Council of Common Interests (CCI) has turned down a proposal for the creation of a Fiscal Coordination Committee (FCC) to restrain the centre and provinces from exceeding expenditure targets, and hence limit the country’s fiscal deficit within budgetary announcements.

The Ministry of Finance had proposed the FCC to strengthen fiscal coordination between federal and provincial governments to achieve consolidated fiscal targets and macroeconomic stability as desired by the international monetary fund (IMF) in the aftermath of fiscal devolution under 7th NFC and 18 Constitutional Amendment.

At the conclusion of fiscal year 2016-17 ending June 30, 2017, the country’s fiscal deficit stood at 5.8 per cent of GDP against a budgeted limit of 3.8pc of GDP that caused embarrassment for the country’s economic managers among the international financial institutions.

In terms of GDP, this was the highest in four years of the PML-N government and in absolute terms it reached Rs1.864 trillion — the highest in 70 years. With some exceptions, the government has traditionally been unable to meet its fiscal deficit limits.

The finance ministry had blamed the four provinces contributing almost 80pc of the Rs635bn budget overshoot or roughly 1.5pc of the total deficit and around half a per cent of GDP by the federal government.

The budget deficit ending June 30, 2017 amounted to Rs1.864tr against a budgeted limit of Rs1.276tr, showing a net Rs588 billion worth of slippage. Major contribution to the country’s historic fiscal deficit appeared to have come from the provinces that were required to provide a cash surplus of about Rs339bn during the last financial year.

This was part of an agreement among the finance secretaries of the provinces and the federal government as part of pre-budget consultations. Instead of surplus, the provinces together offered another deficit of more than Rs163bn, making a net slippage of around Rs502bn.

The highest deficit was booked by Khyber Pakhtunkhwa at Rs75bn, followed by Sindh with Rs61.5bn. The Balochistan government also contributed its bit by overspending Rs22bn while the Punjab government posted Rs4.95bn deficit.

The provinces, on the other, hand blamed the centre for failing to deliver on revenue target and hence the decline in their transfers despite their pre-determined expenditure commitment.

Minutes of the CCI meeting held on November 24 revealed that secretary finance Shahid Mahmood proposed to constitute the FCC to have more structured and formal arrangement with the representation of the finance secretaries of all the provinces, Chairman FBR and to be headed by Federal Finance Secretary.

He proposed that the committee should have the role to review and discuss fiscal policy issues of the federal and provincial governments and suggest solutions and have a monitoring powers on current and development expenditures of the federal and provincial governments and discuss issues relating to FBR receipts so that timely adjustments could be made.

It was also proposed that the committee should also review the debt stock of the federal and provincial governments in the perspective of Fiscal Responsibility and Debt Limitation Act (FDRLA) and discuss the position of provincial own receipts and suggest measures for enhancement of the provincial revenues and monitor cash balances of the five governments.

The Punjab government opposed the committee. It argued that a Monitoring Committee of the National Finance Commission (NFC) already existed which was a constitutional body and the proposed roles for FCC should be assigned to the NFC Committee.

Finance Minister Punjab Dr Ayesha Ghaus Pasha who was representing the Chief Minister recommended to include the finance ministers of all the provinces in any case the FCC was to be created for policy issues.

The CCI led by Prime Minister Shahid Khaqan Abbasi, however, decided that roles proposed for FCC should be given to the NFC Monitoring committee.

The IMF had asked the government to strengthen inter-governmental fiscal policy coordination and closely work with provinces “to improve sub-national revenue collection by modernising agriculture taxation, developing electronic fiscal cadastres to improve property tax collection, and improving taxpayer compliance to bring underdeveloped tax bases more effectively into the tax net”.

Published in Dawn, December 22nd, 2017