The federal government is expected to announce tough measures in the 2024-25 budget aimed at significantly reducing expenses.

These measures include a major cut in pensions except those being given to the defense, civil armed forces, and police personnel, stopping funding for provincial development projects, and sharing the cost of the Benazir Income Support Programme (BISP) with provinces.

The measures have been recommended by a panel to the prime minister, reliable sources within the Cabinet Division told Business Recorder.

Last month, Prime Minister Shehbaz Sharif formed a seven-member committee to develop a practical plan for reducing government expenditure.

The committee, as stated in the notification issued by the Cabinet Division on March 11, 2024, is comprised of the Deputy Chairman of the Planning Commission as the Chairman, along with members from the Cabinet Division and the Finance Division, as well as additional experts in the field.

The committee’s terms of reference include reviewing previous reports and progress made in downsizing the federal government, formulating a strategy and implementation plan for remaining recommendations, and proposing any other measures that could help reduce government expenditure, such as those related to the Public Sector Development Programme (PSDP) and pension schemes.

According to the notification issued by the Cabinet Division on March 11, 2024, the Committee includes the Deputy Chairman, Planning Commission (Chairman); Secretary, Cabinet Division (member); Secretary, Finance Division (member); Rashid Mahmood Langrial, Additional Secretary Incharge, I&P; Kaiser Bengali (member); Farrukh Saleem (member); and (vii) Muhammad Naveed Iftikhar (member).

According to the committee’s recommendations, implementing the proposed measures could potentially reduce the government’s expenditure by up to Rs300 billion per year.

Dr. Kaiser Bengali conducted a study to assess the size of the federal government and prepare proposals for consideration by the main committee.

Dr. Farrukh Saleem was tasked with examining the Finance Division’s proposals to reduce spending on Pakistani missions abroad and sharing the analysis with the main committee.

Pension

The committee suggests that starting from July 2024, all recruitment in the federal government, except for defense, civil armed forces, and police service, should be based on a contributory pension scheme.

IMF and other lending institutions have been urging Pakistan to abolish pension system which contributes significantly to the budgetary expenditures.

No new universities

The committee has also proposed a complete ban on creating new universities under the Higher Education Commission (HEC), as this places an additional burden on the federal government.

It says provincial universities’ finances should be met by their respective provinces rather than the HEC.

Provincial share

The committee recommends that provincial governments share the financial responsibility for the BISP program in their respective provinces.

The sharing arrangement would be defined, with contributions gradually increasing, starting from 25%.

However, special concessions would be considered for underdeveloped regions such as Balochistan and the merged districts.

The Planning Commission has been assigned the task of conducting due diligence for PSDP-funded projects.

The committee further proposes closing all Sustainable Development Goals (SDGs) and provincial nature projects from the next financial year, and only considering and funding national-level projects.

The committee also suggests withdrawing federal subsidies provided for provincial subjects.

Finance Minister Mohammed Aurangzeb recently said that the government would revisit the National Finance Commission Award, a mechanism to share resources between center and provinces.

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The Finance Division is tasked with preparing a comprehensive proposal, including timelines, for pension reforms, such as the Pension Fund and the Pension Law for beneficiary identification and pension contributions for new entrants from July 1, 2024.

SOEs

A framework criterion will be developed to review State-Owned Enterprises (SOEs) based on their respective functions, categorizing them according to public good, regulatory functions, and other criteria.

The Finance Division will take necessary actions based on this review.

Regarding the reorganization of the federal government, the Secretary of the Establishment Division presented an overview of past reform initiatives to determine the size of the secretariat, ministries, and divisions.

The proposal includes a phase-wise abolition of vacant posts from BS 1-16 to reduce the wage bill burden.

Proposal to abolish posts

Dr. Kaiser suggested considering the abolition of posts from BS 17-22 as well.

The participants discussed the financial impact of these posts and emphasized the need for benchmarks based on factors such as the time a post has been vacant and its category and essential service provisions.

The committee agreed to abolish positions in BS 1-16 that have been vacant for a year.