EDITORIAL: A 33.84 billion rupee deficit budget was presented by the Sindh Chief Minister Murad Ali Shah amidst the usual Opposition uproar prompting him to wear ear plugs during his speech yet another year. This contrasts with the balanced budget presented by the Khyber Pakhtunkhwa government and which, in turn, places the onus of generating the 800 billion rupee provincial surplus earmarked in the federal budget as well as the 33.84 billion rupee provincial deficit on Punjab and Balochistan.
However, as Balochistan is an underdeveloped province with no capacity to generate surpluses it stands to reason that unless Punjab government budgets an 833.84 billion rupee surplus for next year the federal government would not only have to: (i) make good this large amount through additional taxation measures that it budgeted without obviously any meaningful consultation with a key coalition partner, notably the Pakistan People’s Party (PPP) in Sindh; and/or (ii) slash the budgeted expenditure over and above the amount that would have to be negotiated with the International Monetary Fund — the 200 to 250 billion rupee cut in the PSDP budget was reportedly under discussion before the passage of the two provincial budgets — a cut politically and economically not tenable.
Syed Murad Ali Shah stated that the budget was prepared subsequent to consultations with all stakeholders but clearly the federal Finance Ministry was not considered a stakeholder. It is important to note that the Sindh deficit is computed on the available resources which consist mainly of the province’s share of the divisible pool taxes (collected by the Federal Board of Revenue) as per the National Finance Commission award and are based on the federal budgeted projections.
As the federal budget is not yet approved from parliament it has to be seen if all budgeted taxes are approved by parliament and not challenged in the court of law (as feared with respect to the tax on deemed income on non-productive immoveable property projected to generate 30 billion rupees). Thus the Sindh budget’s projection of 1.055 trillion rupees as federal transfers (comprising 62 percent of total envisaged transfers) may be an overestimate as in previous years.
The Sindh government has not imposed any new taxes for the second year running and waived off cotton fees, professional tax, entertainment duty and infrastructure development cess for export-oriented industrial units. However the province’s own resources have been budgeted at 167.5 billion rupees and, in addition, 180 billion rupees sales tax on services is an impressive total of 347.5 billion rupees (a rise from last year’s budgeted 304.9 billion rupees) when compared to other provinces.
It must be, however, borne in mind that the federal budget has projected a growth rate of 5 percent for next fiscal year — a projection that is unlikely to be realised especially if the seventh IMF review is a success as its fallout is expected to be the implementation of severe contractionary monetary (already in place but likely to become even more contractionary in weeks to come) and fiscal policies.
Like the federal and KPK governments the Sindh government raised salaries by a whopping 15 percent with disparity allowance of 33 percent of basic pay to BPS 1 to 16 and 30 percent to PBS in grade 17 and above while pensions would be increased by 5 percent (well below the rate of inflation). The obvious thrust being to keep the serving bureaucrats happy while the pensioners will be given a raise well below the Sensitive Price Index of over 21 percent.
However, what must be appreciated is that the outlay on education has been raised to 326 billion rupees comprising 25 percent of the entire budget while health is budgeted to receive 230.3 billion rupees (against 181.2 billion rupees last year), more than 19 percent of the total outlay. Agriculture and irrigation has been earmarked 36 billion rupees — with irrigation receiving the lion’s share of 24 billion rupees.
Water and sewerage sector is allocated at 224.675 billion rupees, solid waste management board 12 billion rupees (4 billion rupees more than 2021-22) and law and order 124.8 billion rupees (against 119.8 billion rupees in the outgoing year). Development schemes have been earmarked 332 billion rupees while social protection department has been earmarked 15.435 billion rupees.
Wheat subsidy for the public has been earmarked 23.32 billion rupees and pro-poor relief 26.85 billion rupees — subsidies in line with those extended by the federal government. To provide subsidies on food items has been a major policy thrust of the coalition government — at the centre and in the Sindh budget considered necessary to ensure that the food needs of the poor and vulnerable are met as much as is possible given the limited available fiscal space and of course to minimize any negative political fallout due to rising inflation.
Copyright Business Recorder, 2022
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