The International Monetary Fund has called upon Pakistan to reopen discussions on the National Finance Commission (NFC) award, The Express Tribune reported while quoting government officials.

This came during the first round of talks under the second review of the $3 billion standby-arrangement (SBA) between the IMF mission to Pakistan and the finance ministry.

A nod from the IMF would unlock the $1.1 billion loan tranche for Pakistan, but the South Asian country would also seek a new long-term IMF programme in the future to improve the economy.

Nathan Porter, the IMF mission chief to Pakistan, raised concerns over the distribution of resources and responsibilities during the discussions.

Government officials disclosed to the newspaper that the international lender emphasised the need for reassessing the NFC award because of the disparities in resource allocation between federal and provincial authorities.

Article 160 of the Constitution authorises the president to approve the distribution of revenues between the federation and the provinces through an order (the NFC Award), on the recommendation of the NFC.

In the past, some politicians have also called for reviewing it given the amount left for the federal government after the distribution of funds to provinces.

The current formula, established in 2010, resulted in provincial shares increasing from 47.5% to 57.5% of total federal taxes, without a commensurate transfer of additional responsibilities. “This has led to a sustained fiscal imbalance and a rise in public debt,” said the report.

The newly formed government informed the lender that the provincial shares could not be reduced without a constitutional amendment and made all the provinces agree to a new formula.

The 2010 NFC award had been agreed for five years but since then there has not been any consensus to revisit it.

Sources said that such a demand was for the new programme as the country has met the conditions set for the last review of the $3 billion arrangement.

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The IMF also raised the issue of excessive spending by the provincial governments. The interim Punjab government spent Rs191 billion on development projects during the first seven months of this fiscal year – a sum that is over Rs300 billion.

Pakistan assured the IMF that the Punjab chief secretary would brief the IMF about the fiscal developments and the corrective measures that have been taken to fix the excessive spending.

In a separate meeting with Energy Minister Musadik Malik, Porter advised the government to stay on the course of price correction by timely making tariff adjustments on account of monthly, quarterly and annual base tariff adjustments.

According to the finance ministry, the second review of the SBA with IMF is scheduled from March 14 to March 18, 2024, in Islamabad.