Ahead of IMF bailout talks, Pakistan asks ministries to surrender unutilised funds earlier

As the federal budget for 2024-25 approaches finalisation, Pakistan’s Ministry of Finance has instructed all ministries, divisions, departments, and self-governing entities to submit any unutilised funds by 15 May, which they believe won’t be spent by the end of the current fiscal year, ending June 30, 2024.

According to a Dawn report, citing the provisions of the 2019 Public Finance Management Act (PFMA), entities funded by public resources must surrender any surplus funds by 31 May each year to close the fiscal year’s books. This surrendering of funds forms the basis for the approval and allocation of funds for the following fiscal year.

However, the federal government’s Accounting Policies and Procedures Manual (APPM) mandates the surrender of unutilised funds or those expected to remain unused by 15 May annually. Consequently, the finance secretary has directed counterparts in other ministries to strictly comply with the APPM to ensure clarity.

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As a result, the deadline for surrendering unutilised funds has been advanced to May 15, in view of upcoming negotiations with the Inter­national Monetary Fund (IMF) for a 24th bailout programme. The allocations for both development and non-development expenditures for the next fiscal year will be based on actual expenditures in the current year, added the report.

The Finance Ministry has issued an order directing all principal accounting officers to ensure the issuance and communication of surrender orders to the Director of Budget Computerization by May 15. This is for the entry of data into the central budget software system, SAP. This directive encompasses all ministries, divisions, their attached departments, subordinate offices, and autonomous organizations, as mandated by Section 12 of the PFMA.

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As per the financial regulations and PFMA 2019, any funds allocated in the original approved budget but not utilized within the fiscal year must be returned to the Ministry of Finance, which oversees federal finances.

Section 12 of the PFMA 2019 stipulates that all ministries, divisions, their attached departments, subordinate offices, and autonomous organizations must surrender anticipated savings in their grant or assignment accounts to the Finance Division by May 31 each year.

In cases of exceptional urgency, the Finance Division has the authority to extend the deadline before the fiscal year’s end. Additionally, the Finance Division must confirm acceptance of such surrenders before the fiscal year concludes. If justified, provisions must be made for the equivalent amount in the subsequent fiscal year’s budget.

Under the APPM, any entity spending funds on behalf of another must exercise proper budgetary control. The spending entity must ensure that the allocated funds are not exceeded, utilized for their intended purposes, and any expected savings are promptly surrendered to the principal entity. The principal entity must communicate the approved grant and authorize expenditure by a designated authority within the spending entity.

APPM’s Section 3.3.12.6 mandates all such entities to surrender anticipated savings to the government immediately upon anticipation, but no later than May 15 annually.

“Savings from funds provided after May 15 must be surrendered no later than 30 June,” it reads, instructing the principal accounting officers to exercise stringent controls in the spending of all potential or actual savings.

Under these rules, no savings could “be held in reserve for possible future excesses”, and expenditure postponed could not be reallocated to meet new items of expenditure, or expenditure must not be incurred simply because funds may be available within a particular grant. “Grants that cannot be properly utilised must be surrendered,” it said.

Earlier last year, as required under the PFMA 2019, the government compelled all ministries, divisions, the four provinces, Azad Kashmir, and Gilgit-Baltistan to immediately surrender their working capital and surplus funds kept for investment, and deposit the money into the single treasury account of the federation.

Article 78 of the Constitution stipulates that all funds received by or on behalf of the federal government are deposited either as part of the Federal Consolidated Fund (FCF) or the Public Account of the Federation (PAF). The cash balances of both FCF and PAF are mai­ntained under central account No.1 (non-food) at the State Bank of Pakistan, while Article 79 requires the custody and payment of moneys from and to the central account to be regulated by an act of parliament.

The Public Finance Mana­gement Act (PFMA), passed by the parliament in 2019 at the requirement of lending agencies, now governs all matters related to the FCF and PAF. It requires the operations of the FCF and PAF to vest in the finance division under the overall supervision of the federal government.

Furthermore, Section 23(2) of the Act also “requires that no authority shall transfer public moneys for investment or deposit from the government account, including the assignment accounts, to any other bank account without prior approval of the federal government”.

On top of that, Section 45 of the Act provides overriding effect over all other laws, and any law inconsistent with this Act, while Rule 4(4) of Cash Management and Treasury Single Account Rules 2020 stipulate that no authority shall transfer public money in contravention of sub-section (2) of Section 23.

With inputs from agencies