Centre has taken Rs34.8bn from the provinces under the IMF-linked grant deal

The federal government has begun taking money from all four provinces’ shares under an arrangement linked to the International Monetary Fund (IMF), something The News describes as a first. Finance Division sources told The News that the Centre has deducted Rs34.839 billion as grant receipts under Article 164 of the Constitution during the first two months of the 2026-27 financial year.

How the deal works

Before the budget, the Centre and the four provinces agreed that the provinces would give the federal government Rs1,035 billion from their National Finance Commission (NFC) share during FY27. The purpose was to help Islamabad meet its obligations under the $7 billion IMF programme. The money counts in the federal books as non-tax revenue.

So far, about 3.4 per cent of the agreed sum has been deducted, which is expected to build up as federal tax collection by the Federal Board of Revenue (FBR) rises through the year, because the deduction follows the agreed formula and revenue collection.

Item	Amount
Agreed provincial grants for FY27	Rs1,035 billion
Deducted in the first two months	Rs34.839 billion
Development budget (PSDP) allocation	Rs682.485 billion
PSDP used by federal bodies in four months	Rs74.655 billion
Water resources allocation	Rs103.086 billion
Water funds used, July to October	Rs18.726 billion

Where the money is going

The government has decided in principle to use the grants for water. The first instalment was approved by the Economic Coordination Committee as a technical supplementary grant for the Bhasha and Dasu hydropower projects and for K-IV, the water scheme for Karachi. We have covered the cost of the dams programme and the debate over federal spending on provincial subjects, both of which touch on who pays for what.

The figures on spending show a slow start for development work. Out of Rs103.086 billion for water development, the federal government authorised Rs90 billion but only Rs18.726 billion was used in July to October. The Cabinet Division authorised Rs64 billion for the Parliamentarians’ Sustainable Development Goals Achievement Programme, yet it has used just Rs59.99 million. The Education Division has used Rs6 billion, the health division Rs6.6 billion, the planning division Rs2.15 billion and Railways Rs4 billion. The Special Investment Facilitation Council Division has used Rs72.8 million.

Why it matters

The provinces receive the largest part of the federal revenue pool under the NFC award, and Islamabad’s budget is squeezed by debt payments and IMF targets. The arrangement is a way of making the provinces share the burden, rather than the Centre cutting its own spending or raising more taxes. For the provinces, it means less money for their own schools, hospitals and roads, unless their revenue grows.

Two things stand out. First, the amount deducted so far is small compared with the full-year figure, so the real impact will come later in the year. Second, the low use of development money in the first four months shows that the money is slow to reach projects, so a larger pool of grants will not by itself build dams.

What we do not know

• How much each province has contributed so far. The report gives the total only.
• Whether provinces will meet the full Rs1,035 billion if their own revenues fall short.
• Whether the IMF has reviewed the arrangement and its pace.

What to watch is the next monthly fiscal data from the Finance Division, any complaints from provincial governments about the deductions, and the IMF’s next review of Pakistan’s programme.