The Punjab budget 2011-12 is a balanced budget indicating neither deficit nor surplus, which presents a mix of positive and negative fiscal developments. The negative part, however, as is the case with other provincial budgets, is mostly centered around non-development expenditures at the cost of development outlay.
More than 20 percent growth in general revenue receipts for 2011-12, compared with the revised estimates of 2010-11, provides the fiscal space for socio-economic development at least on paper. The high growth in revenues is largely based on an optimistic growth projection of over 26 percent in the federal budget and straight transfers - which are estimated at Rs 531 billion compared to the revised estimate of Rs 420 in 2010-11 - a projection that appears to be an overestimation on the part of the federal government.
Moreover, the budget also indicates an ambitious growth of over 17 percent in the provincial tax revenue which has been done on account of greater collection estimated for GST services. Clearly, the revised estimate of 2010-11 indicate Rs 75 billion under this head, indicating a collection of 82 percent against the target of Rs 91 billion.
In addition to general revenue receipts, budget documents also indicate a two-fold increase in current capital receipts, which are projected to grow from Rs 12.6 billion in 2010-11 to Rs 35.3 billion in 2011-12. While the ruling party in Punjab has claimed to follow a 'self-reliance' strategy in the province at public forums, the budget documents indicate Rs 18.6 billion Foreign Project Assistance (FPA), which is more than three times of the FPA obtained in 2010-11.
On the expenditure side, non-development expenditures show a moderate growth of only 12 percent. Subtracting the non-development expenditures from revenues results in an extraordinary revenue surplus of more than Rs 220 billion. After balancing the capital and public accounts deficits from foreign project assistance, the budget 2011-12 has allocated the entire revenue surplus of Rs 220 billion for public sector development projects. Thus, an exceptionally high growth of 58 percent is noticed in the development expenditures compared to estimated development outlay of 2010-11.
While high growth in development expenditures is commendable, the previous years' experience raises uncertainty over the materialisation of allocated development spending. For example: in budget 2010-11, Rs 196 billion were estimated for development expenditures, but only Rs 138.7 billion materialised. This year's target of Rs 220 billion therefore also seems questionable.
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OVERALL BUDGETARY POSITION OF PUNJAB GOVERNMENT
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2010-11 2011-12
Rs (bn) BUDGET REVISED BUDGET
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Total General Revenue Receipts (A) 571.1 544.7 655.7
Total Current Revenue Expenditures 386.8 387.6 434.7
Revenue Surplus/Deficit (A) 184.3 157.1 220.9
Current Capital Receipts 45.3 12.6 35.3
Current Capital Expenditures 45.7 35.5 54.6
Net Capital Receipts (B) -0.3 -22.9 -19.2
Public Accounts Receipts 257.1 1,630.30 1,626.90
Public Accounts Disbursement 260.1 1,631.20 1,627.20
Net Public Accounts Receipts-C -3 -0.9 -0.3
Total Provincial Contribution (A+B+C) 180.9 133.3 201.4
Foreign Project Assistance (FPA) 12.6 5.5 18.6
Total Outsource Funding (G) 12.6 5.5 18.6
Total Development Resources 193.5 138.8 220
Development Revenue Expenditure 100.1 81.4 127.2
Development Capital Expenditure 95.9 57.3 92.8
Total Development Expenditures 196 138.8 220
Budget Deficit (-)/Surplus (+) -2.5 0 0
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Source: Author's estimates based on Annual Budget Statement 2011-12, Government of Punjab
The budget 2011-12 also incorporates the expenditures of 18 ministries/departments that have been devolved under the 18th Amendment. These expenditures have been transferred from the federal government and are reflected in both development and non-development expenditures. The financial implication of devolution on non-development expenditures and its implication on social development by comparing the priorities in budget 2011-12 are summarised in Table 2.
The budget documents indicates the financial impact of devolved ministries/department on non-development expenditures, which for 2011-12 is slightly more than Rs 8 billion or almost 2 percent of total non-development expenditures.
More than half (Rs 4.2 billion) of the devolved expenditures are of an administrative nature since they fall under the domain of general public services. The other significant budgetary impact of devolution is visible in the education sector, where devolution has caused an increase of Rs 2.8 billion, which is more than 10 percent of the total allocation on education in 2010-11.
While the devolved ministries/departments, such as health, economic affairs and environment protection, have negligible financial implications, surprisingly, the public order and safety affairs - a ministry which is not included in the devolution list - has higher financial implications amounting at Rs 0.9 billion.
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TABLE 2: IMPACT OF DEVOLUTION AND PRIORITIES IN NON-DEVELOPMENT EXPENDITURES
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2010-11 Budget 2011-12
Rs(bn) Budget Provincial Devolved Total Amount Share (%)
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General Public Services 222.1 241.5 4.2 245.7 56.5
Public Order and Safety Affairs 63 68.4 0.9 69.2 15.9
Economic Affairs 44.9 61.5 0.1 61.6 14.2
Environment Protection 0 0.1 - 0.1 0
Housing and Community Amenities 3.5 2.6 - 2.6 0.6
Health 22 25.4 0.1 25.5 5.9
Recreational, Culture and Religion 0.9 0.9 0.1 1 0.2
Education Affairs and Services 28.9 24.4 2.8 27.1 6.2
Social Protection 1.4 1.8 - 1.8 0.4
Total 386.8 426.6 8.1 434.7 100
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Source: Authors' estimates based on Estimates of Charged Expenditure and Demands for Grants (Current Expenditure) 2011-12, Government of the Punjab A look into overall non-development expenditures indicates that general public services, public order and safety affairs, and economic affairs are the top three priorities of the Punjab Government. The three combined consume more than 86 percent of the total non-development budget leaving an insufficient share for social development.
In spite of budget increase due to devolution, an alarming feature of the budget is the neglect of the education sector as reflected by the low allocations. The budget estimated for this sector in 2011-12 is Rs 27.1 billion, which is Rs 1.7 billion less than the allocation of Rs 28.9 billion in 2010-11.
To make a meaningful comparison, the allocation in 2010-11 is compared with net provincial allocation made in 2011-12 (ie after excluding Rs 2.8 billion devolved budget). The result reveals a decline of more than 18 percent. A closer look of the budget indicates that the decline was caused due to reduction of expenditures on secondary and tertiary education in 2011-12.
Given that Pakistan is passing through a demographic transition, with a relatively higher share of youth in population, this cut in expenditures is likely to affect the pace of social development in Punjab. Similarly, sectors including health, environment protection, housing and community amenities, and social protection are not among the top priorities of the government of Punjab.
Lower shares of these services in non-development expenditures indicate neglect on the part of the provincial government. This compromise on key social services will neither ensure human resources development nor guarantee sustainable growth - both being important indicators of MDG. Muhammad Sabir works as Principal Economist at the SPDC. He can be reached at muhammadsabir@spdc.org.pk. Ms Naveed Aamir is working as an Economist at the Social Policy and Development Centre (SPDC). She can be reached at naveedaamir@spdc.org.pk.
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