Provincial overdrafts

The entire focus of the media, as well as international development partners, inclusive of bilateral and multilaterals, is on the federal government's burgeoning budget deficit and its implications on inflation.
No one can challenge the serious reservations voiced by analysts, both within and outside the country that the federal government has been unable to meet the challenge of raising the tax to Gross Domestic Product ratio, at present under 10, the lowest in the region, or to reduce its current expenditure, due no doubt to heavier-than-ever-reliance on foreign loans that has led to a massive rise in interest payments on both foreign and domestic debt.
However, what has largely been ignored is that the provincial governments have not performed that well either, in terms of keeping within their budgets by exhibiting fiscal responsibility. The provincial performance with respect to management of scarce resources has been poor. The critical question is whether it augurs well for the country's finances given that the National Finance Commission award, as well as the 18th Amendment, envisage greater financial powers to the provinces?
There is considerable evidence to suggest that devolution of financial powers is an effective strategy to ensure that the grassroots benefit from public investment. In other words, development projects are more in tune with the demands of a particular community with greater provincial autonomy, rather than those that are supported by the centre.
An example of this is the Multan Inner Ring Road, a 7,450 million rupee mega-project, supported by the Centre with the objective of diluting traffic on the existing city roads. The city's dwellers claim this project should not have been prioritised over and above providing water and sewerage to the poor parts of the city.
However, other research reveals that provinces exhibit less responsible behaviour in comparison to the Centre and are less inclined to comply with conditions as stipulated by bilaterals and multilateral donors. Sovereign guarantees required for loans that are on-lent to the provinces implicate the centre more than the province in case of non-compliance, which may account for provinces not feeling the pressure quite as much as the federal government.
Reports on fiscal responsibility, as exhibited by Pakistani provinces as opposed to the federal government, reveal that in our case, the provinces have been performing rather poorly during the last three years. The largest deficit belongs to Punjab. The PML (N) stalwarts are at pains to state at each fora, as they have a lot to answer for relying so heavily on overdrafts with obvious implications on debt and its impact on the erosion of the value of each rupee earned.
Part of the reason is the failure of the provinces to develop their capacity to collect taxes as well as their reluctance to impose taxes on the farm income of rich landlords, as part of their political compulsions. However, part of the reason for the current high overdraft was the decision by the federal government to increase salaries of bureaucrats by 50 percent - an increase that led provinces to convert their prepared surplus budgets into deficit. And in the case of Punjab, the sasti roti scheme left an indelible mark on Punjab's financial health.
To conclude, the federal as well as the provincial governments need to do their bit in terms of keeping within their budgets. It is imperative that the provinces not only focus on developing their tax collecting abilities, but also seek to enhance their revenue generation through taxing the income of the largely untaxed sector, namely the rich farmers. There is a need for the federal and provincial governments to come together and evolve an economic plan in an effort to ensure that all are on the same page.