Consensus on fiscal issues, NFC formula, and provincial support clears hurdles for the federal budget presentation.
ISLAMABAD: Uncertainty surrounding Pakistan’s federal budget for fiscal year 2026-27 has come to an end after the government and the Pakistan Peoples Party (PPP) reportedly reached an understanding on major financial and fiscal matters, clearing the path for the budget to be presented in the National Assembly on June 12.
The breakthrough followed a series of negotiations led by Deputy Prime Minister and Foreign Minister Ishaq Dar, aimed at resolving differences over fiscal arrangements, development spending, and resource-sharing mechanisms between the federation and provinces.
According to informed sources, both sides achieved consensus on several key issues that had contributed to delays in finalizing the budget framework. The agreement is being viewed as a significant step toward ensuring political and economic stability ahead of the new fiscal year.
One of the most important outcomes of the talks was the decision to retain the existing National Finance Commission (NFC) Award formula. The current revenue-sharing arrangement between the federal government and the provinces will remain unchanged, addressing concerns raised by provincial stakeholders who had opposed any revisions.
As part of preparations for the upcoming budget, the federal government has already reduced development expenditures by approximately Rs126 billion. The size of the federal Public Sector Development Programme (PSDP) has consequently been brought down to around Rs1 trillion, largely matching allocations made during the ongoing fiscal year.
Sources said the government has also decided to temporarily halt the launch of new development schemes. However, projects linked to the Ministries of Defence and Interior will remain exempt from the restriction due to their strategic and security importance.
Provincial governments have reportedly agreed to support the federal administration’s fiscal consolidation efforts. Punjab, Sindh, and Khyber Pakhtunkhwa are expected to maintain development spending at current levels rather than significantly expanding expenditures in the next fiscal year.
Punjab, which had initially proposed a development budget of Rs1.45 trillion, may reduce its allocation by more than Rs150 billion under the broader fiscal adjustment plan. Officials believe that if additional resources become available through improved revenue collection and provincial cooperation, development spending could be expanded later.
Under the reported understanding between the ruling Pakistan Muslim League-Nawaz and Pakistan Peoples Party, provinces are expected to provide more than Rs1.2 trillion in grants and fiscal support to the federal government. Punjab is projected to contribute around Rs520 billion, Sindh Rs310 billion, Khyber Pakhtunkhwa Rs180 billion, and Balochistan more than Rs85 billion.
Sources indicated that the funds would be returned to the provinces over time through a mutually agreed financial framework, enabling the federal government to address short-term fiscal pressures while safeguarding provincial development priorities.
Revenue generation is expected to remain at the center of Budget 2026-27. The Federal Board of Revenue’s tax collection target for the current fiscal year stands at Rs13.05 trillion. For the next fiscal year, the government is likely to set a significantly higher target of approximately Rs15.264 trillion as it seeks to strengthen public finances, meet reform commitments, and reduce the budget deficit.
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