This is the fourth article of a multi-part series of articles on the provincial economies. It focuses on some of the key economic ratios in these economies. These estimates have been made for the first time in Pakistan and are the outcome of many months of research.
The first set of ratios relate to the investment and trade levels in 2018-19 in the four economies. These ratios are presented in Table 1 in the form of percentage of the provincial Gross Regional Product (GRP) in constant prices.
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Table 1
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Key Macroeconomic Ratios of Provincial Governments
2018-19
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(% of GRP)
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Punjab Sindh Khyber- Balochistan National
Pakhtunkhwa
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Private Investment 10.2 10.8 11.0 9.1 10.4
Public Investment 3.1 3.3 3.7 5.0 3.3
Total Investment 13.3 14.1 14.7 14.1 13.7
Balance of Trade -11.4 0.5 -18.5 -20.1 -9.1
Indirect Taxes minus Subsidies 4.3 6.9 4.4 4.6 5.1
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The highest level of private investment as a percentage of the GRP is observed in Khyber-Pakhtunkhwa of 11 percent in 2015-19. The high level of remittances into the province have contributed particularly to investment in housing. Sindh follows next at 10.8 percent of the GRP with a higher focus on expansion of industrial capacity. Punjab has an investment ratio of 10.2 percent of the GRP with larger share of investment in agriculture. Balochistan, as highlighted in the previous articles, has fallen behind and its private investment ratio is relatively low at 9.1 percent.
However, the good news is that Balochistan has the highest public investment ratio of 5 percent of the GRP, followed by Khyber-Pakhtunkhwa at 3.7 percent of the GRP. This is the outcome particularly of the location of CPEC projects like the development of Gwadar in Balochistan and highways in Khyber-Pakhtunkhwa. The corresponding ratios for Sindh and Punjab are 3.3 percent and 3.2 percent respectively.
The trade variable is an extremely revealing variable. It relates to the balance between exports and imports both in international and inter-provincial trade. The overall national balance is a deficit in trade of 9.1 percent of the GDP. It maybe noted that the balance in domestic trade at the national level is zero.
There is a wide variation among the provinces in the balance of trade as percentage of the GRP. Sindh has a small surplus, highlighting the concentration of export industry in the province with much better access to the Karachi port. Punjab has a deficit of 11.4 percent of the GDP. Both Khyber-Pakhtunkhwa and Balochistan have relatively large deficits of 18.5 percent and 20.1 percent of their respective GRPs. These reflect the higher dependence on import of basic consumer goods either from the other two provinces or from abroad.
The indirect taxes less subsidies ratio has also been highlighted in Table 1. As expected, it is the highest in Sindh at almost 7 percent of the GRP. It ranges from 4 percent to 5 percent of the GRP in the other three provinces.
The fiscal ratios are presented next in Table 2. The process of fiscal equalization created by the 7th NFC Award in favour of the two smaller provinces is clearly visible. Transfers from the Federal government, as per the Award, are the highest as percentage of the GRP in the case of Balochistan at almost 14 percent of the GRP, followed by Khyber-Pakhtunkhwa at 9.8 percent of the GRP. They are relatively low in Sindh and Punjab at below 6 percent of the GRP. However, the collection from own-revenue sources is the highest in Sindh at 1.7 percent of the GRP.
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Table 2
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Key Fiscal Ratios of the Provinces
2018-19
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(% of GRP at market prices)
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Punjab Sindh Khyber- Balochistan Total
Pakhtunkhwa
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Transfers from Federal Government* 5.8 5.6 9.8 13.9 6.6
Own-Revenues 1.1 1.7 0.7 1.0 1.3
Total Revenues 6.9 7.8 10.5 14.9 7.9
Current Expenditure 5.5 5.8 8.0 11.6 6.2
Development Expenditure 1.2 1.0 2.5 2.3 1.3
Surplus** 0.2 1.0 0.0 1.0 0.4
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Given the larger transfers and less scope for economies of scale, the current expenditure to GRP ratio is higher in the smaller provinces. It is 11.6 percent of the GRP in Balochistan and falls to only 5.5 percent of the GRP in Punjab. The same regional pattern is visible in development spending. Overall, all four provinces had either balanced budgets or small surpluses in 2018-19.
We turn now to the level of spending on economic, social, and other services, including both current and development expenditure. Table 3 presents the expenditure level by service as percentage of the GRP. Here again, the general pattern is of higher spending as a percentage of the GRP by the smaller provinces. Social sector spending on education and health combined is the highest in Khyber-Pakhtunkhwa at 4.7 percent of the GRP, followed by Balochistan at 4.3 percent of the GRP. The corresponding ratios for the other two provinces are significantly lower at 2.9 percent in Punjab and 2.3 percent in Sindh. The same pattern of spending is observed in other services.
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Table 3
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Expenditure on Major Economic and Social Services
2018-19
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(% of GRP)
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Punjab Sindh Khyber- Balochistan
Pakhtunkhwa
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ECONOMIC
Highways and Roads 0.2 - 0.6 0.6
Agriculture 0.4 0.6 0.7 1.4
SOCIAL 2.9 2.3 4.7 4.3
Education 1.8 1.4 3.4 3.1
Health 1.1 0.9 1.3 1.2
OTHERS
Law and Order 0.6 0.7 0.9 1.6
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The above research findings highlight that a process of regional equalization is under way in Pakistan, although Balochistan needs to do more to catch up. Subsequent NFC Awards must strengthen further the process of fiscal equalization.
The research team at BNU hopes that the four articles on the provincial economies will prove useful to policymakers and planners in each province of Pakistan.
(The writer is Professor Emeritus at BNU and former Federal Minister)
Copyright Business Recorder, 2021
The writer is Professor Emeritus at BNU and former Federal Minister
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