Provincial burden to rise by Rs75 billion

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The phased devolution of at least 17 ministries to the provinces under the 18th Constitutional Amendment has increased, what the central bank says, the annual financial burden of the federating units to the tune of around Rs75 billion. What is alarming is the fact that this “resulting increase” in the provincial current expenditures, on account of higher wage bills, pension liabilities, operations and maintenance costs, etc, might leave as the state bank describes, “fewer resources” for the development projects at least in the short run.
On the other hand, the cash-strapped federal government, whose average annual expenditure on these ministries during last four fiscal years was recorded at Rs65 billion against the budgeted Rs78 billion, would be provided with a fiscal space of around Rs75 billion for the current budgetary year, 2011-12 terms. According to official figures, the federal government spent Rs67.4 billion in FY08, Rs63.5 billion in FY09, Rs70.1 billion in FY10 and Rs59.4 billion in FY11 against a budget allocation of Rs70.6 billion, Rs82.9 billion, Rs91.4 billion and Rs66.6 billion, respectively, on these ministries. This is sans expenses the federal government incurred on account of the Higher Education Commission (HEC). The federal government, which is bracing for a fiscal deficit of over five per cent of the GDP thanks to its ever-increasing current expenditures, is left with 31 ministries to take care of, after the devolution. “Financial burden on the provinces is expected to increase with the abolition of the concurrent list,” State Bank of Pakistan (SBP) observed in one of its latest reports on state of the country’s economy.
The four provinces are already spending huge sums on account of current expenditures. According to ministry of finance, during FY11 the current expenditures of Punjab, Sindh, Khyber Pakhtunkwah and Balochistan stood, respectively, at Rs375.5 billion, Rs248 billion, Rs121.7 billion and Rs85.9 billion. The preceding year, FY10, saw them spending Rs303.2 billion, Rs184.6 billion, Rs102.3 billion and Rs56.1 billion. The financial balance of the provinces, especially Punjab and Sindh, usually remains in the red zone as FY10 witnessed Punjab facing a fiscal deficit of Rs33.8 billion and Sindh Rs10.5 billion. The year in review saw the two provinces collecting revenues of Rs401.7 billion and Rs241 billion against an expenditure of Rs435.5 billion and Rs251.5 billion.
Last year, however, the four provinces’ financial balance set in the green zone with Punjab marking a surplus of Rs48.1 billion, Sindh Rs20.5 billion, KPK Rs50.3 billion and Balochistan Rs15.6 billion. But, at the same time the landmark constitutional change has opened new windows of revenue generation for the provinces in the face of, what the State Bank said, GST on services, federal excise duty on well-heads of oil and gas, state lotteries, duties on property, taxes on capital value of immovable property and “any fees” the provincial governments levy on the devolved areas. It is worthy to be mentioned here that Sindh government claims to have collected Rs11.5 bilion during 1HFY12 under the head of GST on services.
However, if the provinces failed to tap this potential they would find themselves in hot waters. With the abolition of federal concurrent legislative list under 18th Amendment, the provincial governments have been devolved some 17 federal ministries in three different phases. The ministries devolved in the first phase include the local government and rural development, population and welfare, special initiatives, youth affairs and zakat and ushr.