Public Financial Management (PFM) is a critical function in governance, ensuring the effective allocation, management, and oversight of public resources. In Pakistan, both the federal and provincial governments have introduced PFM Acts to establish transparent, accountable, and efficient financial systems. The Federal Public Finance Management Act, 2019, and the provincial PFM Acts (such as those of Khyber Pakhtunkhwa and Punjab) lay down the legal framework for budget formulation, execution, reporting, and auditing. This article presents a comparative analysis of these PFM laws, highlighting their similarities, differences, and effectiveness.
1. Legislative Framework & Scope
Federal PFM Act, 2019
The Public Finance Management Act, 2019, governs fiscal discipline and financial accountability at the federal level. It focuses on:
- Budget preparation and execution
- Fiscal transparency
- Cash management
- Debt management
- Financial reporting and accountability
The Act applies to all federal government ministries, divisions, departments, and autonomous bodies receiving federal funds.
Provincial PFM Acts
Each province, including Khyber Pakhtunkhwa (KP), Punjab, Sindh, and Balochistan, has enacted its own PFM law. These laws generally follow the federal framework but include provisions specific to provincial financial management.
For example:
- The Khyber Pakhtunkhwa Public Financial Management Act, 2022, emphasizes internal audit, fiscal discipline, and budget transparency.
- The Punjab PFM Act, 2022, strengthens the role of the Provincial Finance Commission (PFC) for equitable resource distribution to districts.
While the core principles remain similar, provincial PFM Acts have been tailored to address regional fiscal challenges and governance structures.
2. Budget Formulation & Execution
Federal Level
Under the PFM Act, 2019, the Finance Division is responsible for preparing the annual Federal Budget. The Act requires:
- A multi-year budgetary framework
- Performance-based budgeting
- Transparency in revenue and expenditure forecasting
- Timely presentation of budget documents to Parliament
The law also establishes strict controls on supplementary grants, ensuring that budget execution follows the approved appropriations.
Provincial Level
Provincial PFM Acts delegate budget preparation to respective provincial finance departments with oversight from the Provincial Assemblies. Key features include:
- Medium-Term Fiscal Frameworks (MTFFs) for multi-year planning
- Strict budget controls for departments
- Limitations on supplementary grants (e.g., in KP and Punjab, additional expenditures require Assembly approval)
However, provinces face challenges such as:
- Delays in fund releases
- Weak budget execution at district levels
- Overreliance on federal transfers from the National Finance Commission (NFC)
3. Financial Control & Reporting
Federal PFM Act
The PFM Act, 2019, introduced strict requirements for financial reporting and public disclosure. It mandates:
- Quarterly and annual fiscal reports
- Debt sustainability reports
- Cash management plans
The Finance Division and the Office of the Auditor General of Pakistan (AGP) play key roles in ensuring transparency and accountability in federal financial management.
Provincial PFM Acts
Provincial PFM Acts also emphasize regular financial reporting and audits, but implementation varies across provinces. For instance:
- KP and Punjab have improved internal financial controls by strengthening internal audit wings.
- Sindh and Balochistan still face delays in financial reporting and weak internal audits.
One notable difference is that some provinces rely heavily on federal fiscal transfers, making their fiscal autonomy limited compared to the federal government.
4. Debt Management & Borrowing
Federal PFM Act
The Federal Government has a structured Debt Management Framework that includes:
- Limits on borrowing
- Regular reporting on debt sustainability
- Restrictions on guarantees and contingent liabilities
Provincial PFM Acts
Provincial governments also have borrowing provisions, but their debt is strictly regulated by the Federal Government. The State Bank of Pakistan (SBP) and the Finance Ministry control provincial borrowing through the Fiscal Responsibility and Debt Limitation Act.
A major concern at the provincial level is the growing reliance on domestic debt for development projects, leading to long-term financial risks.
5. Internal & External Audit Mechanisms
Federal Level
The PFM Act, 2019, strengthens audit mechanisms by:
- Ensuring timely submission of accounts for external audits
- Reinforcing the independence of the Auditor General of Pakistan (AGP)
- Improving public sector financial governance through internal audits
Provincial Level
Provincial PFM Acts require internal audit functions within government departments. However:
- Punjab and KP have set up Internal Audit Units for better oversight.
- Sindh and Balochistan still face capacity issues in audit implementation.
While audit reforms are progressing at the federal level, many provinces lack technical expertise and trained personnel to conduct effective financial oversight.
Conclusion & Way Forward
The Federal and Provincial PFM Acts aim to improve fiscal discipline, budget transparency, and financial accountability. While the federal framework is more structured and centralized, provincial PFM Acts face implementation challenges due to limited resources, capacity gaps, and dependency on federal transfers.
Key Recommendations:
- Strengthen Internal Audit Mechanisms at both federal and provincial levels.
- Improve Budget Execution through timely releases and monitoring mechanisms.
- Enhance Provincial Revenue Mobilization to reduce dependence on federal transfers.
- Capacity Building for Provincial Finance Departments to improve governance.
- Introduce Digital Financial Management Systems for greater transparency and efficiency.
With effective implementation, PFM reforms in Pakistan can lead to better public service delivery, fiscal sustainability, and economic stability. However, strong political will and institutional capacity are essential to realizing the full potential of these financial governance frameworks.
Sources:
- Public Finance Management Act, 2019 (Pakistan)
- KP Public Financial Management Act, 2022
- Punjab Public Financial Management Act, 2022
- Provincial Finance Department Reports
