What has been a significant source of revenue in meeting extremely challenging budget deficit targets agreed with the International Monetary Fund (IMF) under the ongoing 6.64 billion dollar Extended Fund Facility (EFF) is the significant rise in what is termed as provincial surplus that has been reportedly generated through a 40 percent cut in provincial annual development programmes. The question is whether provinces independently better managed resources or were forced to manage huge surpluses by the federal government?
The civilian government in the country in 2008 after a gap of nine years of Musharraf's dictatorship inherited the components of the federal government's resource position in Table 1.
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Table 1 (Rs billion)
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Year Budgeted Realized Budgeted Realized
financing of change in
PSDP by provincial
provinces cash balances
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2008-09 124.4 123.6 78.9 37
2009-10 172.9 183.9 72.9 77.5
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As evident from Table 1, till 2009-10 the provincial governments were required to meet the budgeted financing of Public Sector Development Programme (PSDP); given that the federal government's sectoral projects were in the provinces financial support by the provinces was deemed appropriate. Thus in the first year of its tenure the PPP-led coalition government allocated 124 billion rupees as provincial support for PSDP (which was more or less realised) and 172.9 billion rupees in 2009-10 which exceeded the budget by 10 billion rupees.
Cash balance or surplus declined massively in the first year after the 2008 general elections - from the budgeted 78.9 billion rupees to just 37 billion rupees in the first year of the PPP-led coalition government in the centre and Sindh while the Punjab government was led by PML-N. Pakistan went on the IMF programme in November 2008 and in the subsequent year the budgeted cash balance was surpassed, reflecting some conditions.
The 7th NFC Award 2010 with negotiations led by the then Finance Minister Shaukat Tarin took long standing demand of the smaller provinces on board with the Punjab government agreeing to a reduction in the share of population in determining the provincial share in the divisible pool. This had a direct negative bearing on Punjab's share from the divisible pool and under the new formula Punjab's share declined to 51.74 percent, Sindh's share rose to 24.55%, Khyber Pakhtunkhwa's rose to 14.62% and Balochistan was allocated 9.09 percent. The 18th Amendment also in 2010 devolved social sector subjects to the provinces and unfortunately to this day the capacity of the provinces to support this additional responsibility is severely limited.
With the passage of the NFC and the 18th Amendment the accounting format of the federal budget changed with respect to the provincial resource position in the federal budget and the financing for PSDP as well as the cash balance was consolidated into provincial surplus. It is, however, unclear whether this surplus is now earmarked for provincial PSDP or for meeting the federal government's budget deficit.
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Table 2 (Rs billion)
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Year Budgeted Realized
provincial
surplus
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2010-11 166.9 119.8
2011-12 124.8 90.7
2012-13 79.5 62
2013-14 23 183
2014-15 289 141.5
2015-16 297
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The table 2 shows the provincial surplus budgeted and realised from 2010 onwards.
The provincial surplus during the first two transformative years subsequent to the passage of the NFC and the eighteenth amendment reflected a budgeted provincial surplus for 2010-11 and 2011-12 that was comparable to the budgeted financing of PSDP by provinces and cash balances. However the situation in the next two years steadily worsened in terms of what was budgeted - from 79.5 billion rupees in 2012-13 which can be explained by 2013 being an election year to 23 billion rupees during the first year of the Sharif administration. And that's when the accounts underwent a change with the budgeted amount of 23 billion rupees was much lower than the realized amount of 183 billion rupees - a rise that can be attributed to the decision of the Dar led Finance Ministry to go on an IMF programme which required meeting extremely challenging budget deficit targets.
With an inability to either check current expenditure or raise revenue significantly and subsequent to slashing development outlay the Dar-led Ministry steadily increased budgeted reliance on provincial surplus. What is further disturbing is the fact that once Dar became aware of this revenue source he used it shamelessly in the budgets for the next two fiscal years (including the ongoing fiscal year 2015-16). Thus the budgeted reliance on provincial surplus to meet the budget deficit was 289 billion rupees last year and 297 billion rupees in the current year - well in excess of pre-NFC award and pre-18th Amendment provincial allocations for PSDP as well as cash balances.
Dar has been at pains to lament the rise in allocations to provinces as per the NFC Award and accuses the provinces expenditure priorities as being responsible for the continued lack of social sector investments.
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Table 3 Rs billion
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Year A. Net transfer to B. Revised Difference Provincial
provinces (budget) net transfers (A-B) surplus
to provinces (realized)
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2010-11 1077 1033 119.8
2011-12 1203 1208 1208-1033 = 175 91
2012-13 1458 (cited at1545 in 201-14 budget) 1395 1395-1208 = 187 62
2013-14 1680 (cited at 1502 in 2014-15 budget) 1413 1413-1395 = 18 183
2014-15 1720 1574 1574-1413 = 161 141
2015-16 1849
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These are unfair accusations and he must bear part of the blame as indicated in table 3. Three disturbing elements are distinct between the accounts of the PPP-led coalition government and Dar years. First, during the PPP years (up to 2012) provinces received higher revenue from the divisible pool in each subsequent year but showed a declining surplus. The 2012-13 was an exceptional year not only because it was an election year but also because Dar took over in June that year and took decisions that considerably increased the deficit no doubt relying on the fact that the bulk of the responsibility for this would rest with the PPP led coalition government and the caretakers. Second, the budgeted surplus up to 2012 was more realistic in contrast to the Dar years. And finally during the Dar years the difference (rise) in revised net transfers to provinces (additions) was less than the revised provincial surplus and if one takes account of the budgeted provincial surplus in Table 2 the difference is all the greater.
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