Under pressure from the International Monetary Fund, the federal government has begun work on a plan to slash expenditures in an effort to reduce the budget deficit, officials said.
According to sources, the government is preparing to cut provinces’ share in the National Finance Commission (NFC) Award. The move is aimed at ensuring debt repayments and narrowing the fiscal gap.
The federal government recorded a deficit of 7.44 trillion rupees in the last fiscal year, while the Finance Ministry estimates the shortfall this year will be 6.5 trillion rupees.
Major federal expenses include debt servicing, social protection, defense, development projects and subsidies. This year, debt servicing alone will cost 8.2 trillion rupees, sources said.
Officials said the government is considering revising the current 57.5 percent provincial share in the NFC Award. Proposals under discussion include linking provincial allocations to performance in education, health and environmental sectors.
Funds for mega projects, such as the Diamer-Bhasha dam, could also be carved out from the NFC pool. Another proposal suggests earmarking a separate allocation for Islamabad, Gilgit-Baltistan and Azad Jammu and Kashmir.
The plan has already drawn criticism from provinces. Sindh has rejected the proposal, sources said.
Other measures being studied include lowering the weight of population in the NFC formula, currently set at 82 percent. Officials argue that greater fiscal space at the federal level would help Pakistan meet IMF conditions.
