ISLAMABAD: Pakistan has been directed by International Monetary Fund (IMF)to make substantial changes to the National Finance Commission (NFC) award.

The Washington-based lender said it recommended these measures due tosevere pressure on the governments finances and major macroeconomicimbalances arising due to its enforcement, reported Dawn.

IMF suggested the authorities to establish a technocratic financial councilunder supervision of Council of Common Interest (CCI). Also, it recommendedthe setting up of contingency fund under aegis of provincial and provincialgovernments.

Also, the Washington-based lender sought the establishment of a permanentnational tax commission which would help in increasing the tax net. Allthese proposals have been put forth in IMF’s Article-IV review of thecountry’s economy which will hopefully be approved next week by itsexecutive board.

The forthcoming IMF Article-IV report once approved has criticized the 7th NFCAward for having been lopsided and less flexible, which restricted thegovernments ability to resolve macroeconomic imbalances and vulnerabilities.

Because of this, the government failed in fully exploiting the revenuesources which caused the government in getting any cushion to address anyprobable economic shocks in the short-term.

IMF cautioned in tumultuous situations, these weaknesses could impactmacroeconomic stability and advocated for design aspect modifications infinancial framework of the 9thNFC award.

It added the forthcoming NFC award should focus on reinforcingmacroeconomic stability and improve efficiency, responsiveness andflexibility of financial framework.

IMF’s report said constitutional parameters restrict the options forchange, but improvements can be examined in existing legal framework. Itadded, these improvements must take into consideration the expected outcomefrom the expected 9th NFC award on public debt, nation-wide efficiency ofpublic expenditure across all levels of government and effectiveness offiscal policy.

IMF’s report envisages a uniform framework for reporting, accounting,transparency of public-private partnerships, public-sector enterprises,liabilities from wheat procurement, special purpose vehicles (SPVs) at alllevels of government would be paramount to financial discipline.

It recommended the setting up of a contingency fund which will be financedboth by provinces and the federal govt to cushion from an exorbitant amountof unexpected expenditure of national significance, whose use will besanctioned by CCI and with the consent of both parties.

According to the report, the 7th NFC award which is in its 9th year hadfailed to give any incentives to provinces or the centre for widening taxnet. It recommended for establishment of an incentive-based nationalframework to boost tax revenues without over-taxing compliant taxpayers andwork in conjunction for widening of fiscal space for much needed socialspending and development.

The report suggested forthcoming NFC award should reduce federal borrowingneeds by decreasing vertical imbalance or enter into a burden-sharingagreement for the impact of its design on public debt, since provinces wererunning financial surpluses.

It advised provinces to be a part of power distribution sector reforms andshoulder the weight of liabilities due to delays.

The IMF report also urged for decentralization of expenditure and revenueto local governments over medium-term to majorly improve provision of basicservices taking the large sizes of provinces into context.

It advised this should be carried on a timely basis to ensure enhancing ofadministrative capacity and public finance systems of localadministrations. This would allow transfer of service delivery functionsand required resources from provincial to local governments to deliver onsocio-economic aspect of decentralization.