ISLAMABAD: The fiscal framework struck with the IMF for the 2025-26 budget to restrict the overall deficit has fallen apart even before parliamentary assent, as Sindh has presented a deficit budget for the upcoming financial year.
The question also arises about the fate of the revenue surplus agreed with the IMF for the outgoing fiscal year 2024-25 ending on June 30, 2025 as the provinces argue in the closed door meeting that they would only be able to achieve the revised figure of revenue surplus if the FBR will achieve its revised down tax collection target of Rs 12.332 trillion.
Initially, the FBR had envisaged its annual tax collection target of Rs 12.97 trillion, but after witnessing a shortfall, the target was revised downward to Rs 12.33 trillion. However, in the budget documents, the FBR’s target was further revised down to Rs 11.9 trillion for the outgoing fiscal year. The FBR’s tax collection might hover around Rs 11.6 to Rs 11.7 trillion by the end of June 2025, but it requires the collection of Rs 1.4 to Rs 1.5 trillion to touch Rs 11.6 or Rs 11.7 trillion by the end of June 2025.
For the budget 2025-26, the federal budget deficit was envisaged at Rs 6.5 trillion, and provincial revenue surplus was envisaged at Rs 1.464 trillion so that the overall budget deficit would be restricted at Rs 5.03 trillion or 3.9 percent of GDP for the next budget.
Out of the revenue surplus of Rs 1.4 trillion agreed by the provinces under the Memorandum of Understanding (MoU) struck by the Ministry of Finance and four provinces, all federating units agreed to generate the revenue surplus in their announced budgets for the next fiscal year.
This breach of the MoU under the IMF programme has raised eyebrows of finance ministers of other provinces and they might ask the Centre to review the situation before seeking approval of the budget from their respective provincial assemblies. Punjab and Khyber Pakhtunkhwa (KP) have presented their provincial budgets and generated revenue surplus but it is yet to analyse whether they generated the revenue surplus up to the desired level or not.
Balochistan is expected to announce its budget for 2025-26 on Tuesday (today). This scribe contacted Ministry of Finance’s former adviser Dr. Khaqan Najeeb on Monday, who said that the Sindh government’s projected provincial deficit of Rs. 38 billion for the upcoming fiscal year differs significantly from the federal budget’s projection of a Rs. 298 billion surplus for Sindh. This highlights the importance of a careful and constructive review to better reconcile these differing estimates.
He explained that additionally, the overall fiscal deficit (OFD) is anticipated to rise to 4.1 per cent, somewhat above the federal projection of 3.9 per cent for the next budget because of this development.
It is also worth noting that the Sindh deficit projection for FY25 depends on the FBR meeting its revenue targets, which have historically been challenging to fully achieve, with an acknowledged shortfall of approximately Rs. 1 trillion in the current year. Moreover, Sindh’s actual revenue share for 2024-25 was Rs. 104 billion lower than federal estimates. Given these considerations, a thorough and thoughtful evaluation of the Sindh budget would be valuable to ensure a realistic and balanced understanding of the fiscal outlook and the prospects for the projected surplus, Dr. Khaqan concluded.
When contacted, the Sindh government’ spokesman said the federal government had not released the required amount, leaving the province with no option but to present a deficit budget.
