Pakistan on Wednesday assured the International Monetary Fund (IMF) that it will approve a new action plan in two months aimed at reducing wasteful development spending through better allocation of resources, trimming the list of ongoing projects and centralizing their approval process.
The 60-point action plan spanning two years has already been mutually endorsed by the IMF and Pakistan, but now requires the stamp of approval from the federal cabinet.
The Ministry of Planning has informed the IMF about the action plan and the steps taken so far. The IMF has been assured that the cabinet will approve the plan by the end of December, sources said.
Negotiators also informed the global lender of plans to separate tax policy from the functions of the Federal Board of Revenue (FBR), a move that had been initiated under the Special Investment Facilitation Council (SIFC).
During the seventh day of talks, the IMF took stock of the government’s commitments to implement the new action plan in the framework of the Public Investment Management and Administrative Reforms Assessment of the tax system.
Unlike earlier practices, caretaker finance minister Dr Shamshad Akhtar also participated in these meetings. Typically, finance ministers only participate in policy-level talks, which are scheduled to begin on Monday.
Pakistan has agreed to make drastic changes to its public investment policy, approval and implementation framework to end waste, which is often the result of poorly designed politically oriented projects, donor-driven projects and a lack of capacity and funding to their application. systems.
“PSDP [Public Sector Development Programme] is unsustainable with currently approved projects that may take a decade and a half to complete before cost increases are taken into account,” said a technical assistance report prepared by the IMF after its March visit.
This year’s technical mission report identified gaps in Pakistan’s public investment management and recommended measures needed to strengthen it.
Despite severe fiscal constraints and a huge backlog of unfinished projects, the report revealed that new projects totaling Rs 2.3 trillion were added by the government in the 2022-2023 budget.
Pakistan is committed to formalizing procedures for obtaining information on projects financed from sources other than the PSDP and the current consolidated information on the public sector investment program in the budget extended the PSDP. It has set deadlines of December 2023 to June 2024 to achieve these goals.
A new mechanism will be put in place to report risks related to state-owned enterprise (SOE) projects, including their potential liabilities.
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The IMF has identified a lack of coordination with the provinces on investment. The role of the National Economic Council is effective only to the extent of the federally funded PSDP.
However, SOEs and other federal government entities that finance infrastructure projects from their own revenues have significant autonomy, and this creates the potential for a lack of coordination in investment plans, according to the technical mission report.
The Public Finance Management Act requires all projects to be technically approved before receiving funds in the budget. However, there are no other selection criteria to guide the allocation of limited budget resources for PSDP projects.
One of the biggest elements of the PSDP – MPs’ plans – is not approved through the regular process. rather the endorsements are discretionary in nature.
Pakistan has committed to the IMF that by the end of December, it will develop a draft domestic proposal for the selection of projects to be financed by the PSDP. Final criteria for selecting projects for federal funding will be released by mid-2024, according to the action plan.
Similarly, in the first half of next year, Pakistan will conduct a review of technically approved projects and narrow down the list of high-priority projects that can be financed by the PSDP. This can result in the removal of hundreds of shapes.
The IMF report identified several gaps in implementation and monitoring systems and recommended improvement in ex post evaluation and more active portfolio oversight.
There are a number of mechanisms that ensure alignment between strategic plans, national goals and investment plans that can help achieve them. However, the previously established national planning process has been disrupted by the failure to finalize the 2018 National Plan, while sector-specific plans only provide strong guidance in certain areas.
Caretaker Finance Minister briefed IMF on FBR restructuring plans. He said a task force is working to bring about structural changes in the tax system.
The minister reportedly told the IMF that the policy function may be separated from the FBR.
Former Prime Minister Imran Khan’s cabinet had decided in 2018 to separate policy and operational functions, but the decision was never implemented.
Sources said there was no convergence between the task force and the FBR on several issues. They said the restructuring plan was yet to be presented to the Chief Minister and SIFC for approval.
Sources added that there was a proposal to create a new tax policy department for the policy function. There is already the Directorate of Revenue, which has become ineffective as all its functions are performed by the chairman of the FBR and its members. The main point of discussion was the role of the tax policy department. The question was whether it should be a body that works to maximize revenue or set policies aimed at economic development.
Published in The Express Tribune, November 9u2023.
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