Islamabad (TDI): Federal bureaucrats have raised concerns over the existing National Finance Commission (NFC) Award, saying it had disrupted the country’s financial structure.
This was stated during a meeting of the Senate Standing Committee on Finance, chaired by Senator Saleem Mandviwalla.
It was stated that under the NFC awards, a major chunk of country’s annual revenue goes to provinces. As a result, the government is paying up to 8% interest on foreign loans to meet its needs.
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On the occasion, Federal Finance Secretary Hamedullah Bosal highlighted that the financial framework has been distorted since the 7th NFC Award and must be revised to reduce financial burden on the federation.
“The 7th NFC award increased the provincial share in federal taxes from 47.5% to 57.5% but failed to close ministries that were transferred to provinces,” he said.
The finance secretary maintained that due to this imbalance, the finance ministry has become increasingly dependent on domestic and foreign lenders.
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The federation and the provinces are now negotiating the transfer responsibilities for education, health, and the Benazir Income Support Program (BISP). However, the federal government will continue to contribute to BISP expenses.
Senator Saleem Mandviwalla said the consultative process between the federal and provincial governments on the new NFC Award should start immediately.
External Loans
Finance Minister Muhammad Aurangzeb informed the committee that Pakistan secured $7 billion in loans from the IMF at an interest rate of 4.87%, with a repayment period of 10 years.
Additionally, $7.4 billion in commercial loans were obtained at interest rates ranging from 7% to 8%, reflecting economic challenges.
In September, the Shehbaz government borrowed $200 million from the Bank of China at a combined interest rate of 8.5%, including the Secured Overnight Financing Rate (SOFR). The IMF has identified a $2.5 billion financing gap for the current fiscal year, which will be addressed through new loans.
Pakistan also allocated $1 billion for Eurobond repayments in the budget but has yet to enter global markets. The country plans a “non-deal roadshow” by the end of this or the next fiscal year, aiming for better interest rates as condition improves.
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The Finance Minister further said that the country has requested an additional $1-1.5 billion program from the IMF to address long-term climate-related reforms.
He said that further discussions are expected during staff-level talks with the IMF in March.
Merit-Based Recruitment
For his part, Rashid Langrial, the Chairman of the Federal Board of Revenue (FBR), dismissed allegations of non-merit-based hiring.
“There was pressure to violate merit, it was resisted,” he informed the meeting.
He further added that the FBR had halted hiring for Grade 1-4 positions, but 196 individuals were appointed in Grades 5-15, all on merit.
