ISLAMABAD: The federal government has started discussions with provinces on a proposal to slash federal funding for provincial development projects and devolved subjects, in order to comply with commitments made to the International Monetary Fund (IMF) amid growing interest payments.

Pakistan has to achieve a primary surplus — the difference between total revenues and expenditures except interest payments — at 0.4pc of GDP (about Rs400 billion) on the basis of Rs600bn cash surpluses, which are to be returned to the federal government by the provinces.

International lending agencies, particularly the World Bank, have been asking the federal government to stop providing funds to provincial projects and devolved subjects, involving fiscal savings of more than Rs700bn.

Besides development schemes, the federal government is also financing devolved responsibilities, for instance vertical health projects.

Federal govt to cut PSDP by Rs200-250bn

At a meeting presided over by a provincial chief minister, federal Finance Minister Dr Shamshad Akhtar reminded the provinces of their responsibility to not only meet the provincial commitments for cash surplus but also to prioritise development projects so that pressure on federal finances could be minimised.

“There is a huge potential for rationalising public expenditure arrangements between the federal and provincial governments for promoting efficiency and effectiveness of public expenditure,” Dr Akhtar told the caretaker provincial leaderships.

She called upon them to give priority to speedy and smooth implementation of the projects being executed under public sector development programmes (PSDP).

The minister pointed out, “Corrective measures will not only result in substantive savings but will also contribute to improving the effectiveness and implementation of the project in the priority sectors of education and health.”

Federal PSDP

Informed sources said the federal government itself would be cutting down its public sector development programme by Rs200bn to 250bn through rationalisation of ongoing schemes, including cutting financial flows to projects at initial stages, or those made part of the development plan on political considerations.

While sensitising the provincial finance ministers regarding the expenditure and revenue targets in the current budget, Dr Akhtar encouraged the provincial governments to ensure these targets were met so that the primary budget deficit targets can be achieved.

“The meeting recommended that provinces bring forward prioritisation of various projects funded by the federal government which falls under the ambit of provincial subjects following the devolution of power,” an official statement said.

The meeting was aimed at reviewing the spending patterns of PSDP, controlling prices of essential commodities, improving the quality of services in education and health sectors and providing relief to the public by strengthening social safety nets.

The meeting was attended by the Sindh chief minister, finance ministers of Khyber Pakhtunkhwa and Balochistan, and the federal and provincial finance secretaries.

Published in Dawn, September 28th, 2023