The past fifteen months have been replete with speculation and debate about the state of provincial finances following the successful conclusion of the 7th NFC Award and the phase-wise devolution of some key ministries under the 18th Constitutional Amendment.
Much has been said about the capacity, or lack thereof, of the provinces to cope with their new fiscal reality. Devolution has raised hopes for improved social service delivery at the provincial level. However, left to their own devices, it is yet to be seen whether the provinces aggressively pursue social development or will the social sectors suffer neglect once again?
This question is even more pertinent for the smaller members of the federation such as Balochistan. The largest province in terms of landmass but the smallest in terms of population, Balochistan has long been perceived as the most neglected province. The level of deprivation in the region is acute, with poverty levels as high as 47 percent according to some estimates. A steady deterioration has also occurred in the law and order situation over the past decade.
In these turbulent times, the multi-factor formula for the NFC Award spells good fortune for Balochistan whose share in the federal divisible pool has nearly doubled from 5.11 percent to 9.09 percent. Alongside the concessions made in the Aghaz-e-Huqooq-e-Balochistan Package for Balochistan's role in sustaining the nation's energy economy for over 50 years, the provincial coffers are in better stead now than ever before.
A provincial budget worth Rs 164.56 billion has been announced for the fiscal year 2011-12 with substantial growth envisaged in both current and development expenditures. Budgetary allocation for current revenue expenditures at Rs 90.56 billion is 8.5 percent higher while the PSDP 2011-12 at Rs 31.35 billion is 19.1 percent higher than the 2010-11 budget estimates.
Overall, the proposed budget is just 8.6 percent higher than the last year at a time when the inflation rate is hovering around 13 percent. In spite of this increase, the seventh NFC Award has undoubtedly given the province more room to flex its fiscal muscle. On the side of receipts, the federal divisible pool taxes estimated at Rs 93.26 billion continues to be a major source of provincial revenue. Transfers in respect of gas development surcharge (GDS), royalty and excise on gas and crude oil will remain at Rs 12 billion as agreed under the Balochistan Package.
A reasonable improvement in the provincial own receipts is expected on account of higher non-tax receipts, although it will merely finance 3 percent of the proposed provincial budget. With the revenue side greater than ever before, foreign project assistance is likely to be slashed to half this year.
Despite the improved state of provincial finances after the seventh NFC Award, a net deficit is on the cards of approximately Rs 4.89 billion. Though the revised estimates for 2010-11 show a surplus of more than Rs 10 billion, the budget estimates for 2010-11 indicate a deficit of Rs 6.46 billion. In order to convert the budget deficit into surplus, non-development revenue expenditures were curtailed last year by around Rs 9 billion.
These figures are encouraging but the reality is not as it seems. Despite cuts in non-development expenditures, the bulk of the expenditures (ie 81 percent) are assigned to non-development uses which leaves only 19 percent for development. In contrast, Punjab, Sindh and Khyber Pakhtunkhwa provinces are expected to spend at least 30 percent on development. It appears that Balochistan, in comparison, has neglected development once again.
-- Balochistan Government's Overall Budgetary Position
FOCUS OF DEVELOPMENT
The analysis of non-development expenditures indicates that renewed priority is given to economic affairs and education sectors this year while the health sector has been downgraded despite dismal health indicators. Moreover, social protection at 1.1 percent continues to receive the lowest allocation in current expenditures.
A consistently high growth of over 90 percent in the proposed expenditures for economic affairs is noticeable from 2009-10 onwards, which suggests that a bigger resource base is conducive for maintaining the consumption needs of core economic sectors.
A few sub-sectors display remarkable growth compared to last year. Of particular mention is rural development which grew from a meager Rs 0.45 billion in 2010-11 to Rs 5.6 billion in 2011-12 indicating an eleven times increase.
This was followed by the abolition of local councils in urban centres under the Balochistan Local Government Act 2010. Devolution of the Ministry for Local Government and Rural Development in December 2010 also triggered seven times higher spending during 2010-11 causing the sectoral share to rise from 0.07 percent to 6.2 percent compared to the previous year.
Agriculture and food also show a substantial growth of 45 percent in the current budget. The livestock sub-sector, which was devolved in April 2011, experienced a curtailment of expenditures during 2010-11; however, it appears to be back on track with a 24 percent higher allocation this year. With the recent decision to devolve the food and agriculture ministry, it will be interesting to see how resources are actually spent on these sectors which have the largest contribution in provincial output and employment.
The volume of expenditures for recreation, culture and religion have also risen with substantial growth in Religious & Minorities Affairs and Sports & Recreation facilities by 263 percent and 46 percent, respectively. The bulk of expenditures (more 80 percent in 2011-12), however, are allocated for natural calamities. Spending on this category has been necessitated by the floods of 2007 and 2010 and the earthquake in Ziarat in 2008. The current budget estimates also reflect the long-term impact of these disasters.
In spite of the uncertainties and insecurities generated by the law and order situation causing further unemployment and increasing poverty, social protection has been given the lowest share in the non-development expenditures.
The impact of devolution of Population Planning department was reflected in the Rs 7.24 million outlays of 2010-11 and a further two-fold increase in allocation this year. Nevertheless, it is disappointing to note that the allocated budget for social security and social welfare is, in fact, below the sectoral spending of last year. For an ostensibly pro-poor budget, the contraction of expenditure on social welfare is confounding.
Due to deficits incurred over many years, the Balochistan government has normally relied on budgetary support from the centre to finance its PSDP. But the present improved state of provincial finances has enabled it to substantially scale up the volume of development expenditures.
The size of PSDP 2010-11 was 42 percent higher than PSDP 2009-10, which largely concentrated on the roads sector with relatively lower allocations for the social sectors. This year, Rs 31.35 billion is proposed for development compared to Rs 26.33 billion in the previous year. Interestingly, priorities have not changed significantly compared to 2010-11 with roughly 50 percent of all development expenditures assigned to economic sectors once again.
With 31.4 percent share in the PSDP 2011-12, the primary focus is again on the highways, roads and bridges sub-sector. There is also significant increase in support for industrial development, forestry, livestock, and agricultural research and extension services compared to previous budget estimates. While these developments may prove to be of considerable economic value to the fisheries, agriculture and mining sectors it also means that less is available for social sector development.
EDUCATION & HEALTH PRIORITIES
Education, health, and social protection thus have received a share of 8.9 percent, 4.7 percent and 3.1 percent, respectively in the proposed development budget. Comparatively, the education sector had received a higher share last year (ie 12.7 percent) though the actual spending was slashed to roughly half of the budgeted amount. Since then, it has received less than 9 percent share of the development budget. The PSDP 2011-12 allocates Rs 2.8 billion for education or 22.3 percent more than last year. Interestingly, while achievement of Universal Primary Education is a critical concern for the province, budgetary allocations after devolution appear to favour higher education over primary education as far as development is concerned.
According to the Education Emergency Report 2011, Balochistan with its current pace will not be able to meet the MDGs for education before the year 2100. The shift in sectoral priorities as indicated by the 3.4 percent decline in proposed expenditures for primary education and substantial increase of 52 percent for colleges and universities appears somewhat illogical.
The health sector with an allocated budget of Rs 1.45 billion does not rank among the top priority sectors in the development budget. The health infrastructure is sorely lacking with insufficient 50 bedded hospitals and tertiary health care facilities in the entire province. The rate of maternal and infant mortality in Balochistan is also far above the national average.
Some of the proposed interventions in PSDP 2011-12 such as establishment of a cardiac centre and trauma centre in Quetta as well as construction of larger hospitals in the smaller districts perhaps would correct the existing imbalance however, the level of deprivation warrants a more concentrated effort. Devolution may renew focus on this critical area but the results remain to be seen.
The writer is a Researcher at SPDC. She has done MSc in Comparative Politics (Politics and Markets) from London School of Economics and Political Science in UK, after completing her BBA (Finance) the Institute of Business Administration in Karachi. She can be reached at rabiasidat@spdc.org.pk
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BALOCHISTAN GOVERNMENT'S OVERALL BUDGETARY POSITION
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2010-11 2011-12
Rs (bn) Budget Revised Budget
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Total General Revenue Receipts (A) 115.5 117.2 127.1
Total Current Revenue Expenditures 83.4 74.3 90.6
Revenue Surplus/Deficit (A) 32.1 42.9 36.5
Current Capital Receipts 24.7 21.9 28.6
Current Capital Expenditures 41.8 38.5 42.6
Net Capital Receipts (B) -17.2 -16.6 -14.0
Public Accounts Receipts 26.6 29.2 32.2
Public Accounts Disbursement 26.4 27.6 30.3
Net Public Accounts Receipts- C 0.2 1.7 1.8
Total Provincial Contribution (A+B+C) 15.1 28.0 24.3
Development Revenue Receipts (Other Federal Grants) 1.5 7.6 0.5
Foreign Project Assistance (FPA) 3.3 1.5 1.6
Total Out Source Funding (G) 4.7 9.1 2.1
Total Development Resources 19.9 37.1 26.5
Development Revenue Expenditure 0.0 0.0 0.0
Development Capital Expenditure 26.3 27.1 31.4
Total Development Expenditure 26.3 27.1 31.4
Budget Deficit (-)/Surplus (+) -6.5 10.0 -4.9
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