Devolved ministries: Federal govt’s spending soars to 0.6pc of GDP

ISLAMABAD: The federal government’s spending on devolved ministries has increased from 0.4 percent of GDP in the fiscal year 2009 to 0.6 percent of GDP in the fiscal year 2022, amounting to more than Rs315 billion per year, says the World Bank.

Apart from this, the federal government continues to engage on devolved subjects through semi-autonomous bodies that focus on devolved service delivery areas, such as the Higher Education Commission (HEC) and the National Commission for Human Development (NCHD).

In the fiscal year 2022, the HEC spent around Rs70 billion, said Derek HC Chen senior country economist, World Bank while briefing a select group of journalists.

World Bank cuts Pakistan’s GDP forecast to 0.4%

Seventeen ministries were devolved to provinces after the 18th Constitutional Amendment, however, despite the amendment, the federal government maintains recurrent spending on areas that have been devolved to the provinces. Most of these ministries are still under the federal government structure.

Spending on devolved ministries increased from 0.4 per cent of the GDP in the fiscal year 2009 to 0.6 per cent of GDP in the fiscal year 2022 i.e. amounting to more than Rs300 billion annually, said Chen. This incomplete devolution has led to spending overlaps between the federal and provincial governments, which is likely to have led to redundancies, duplication of tasks and cost, and overall higher-than-optimal expenditures at the federal level.

The Bank recommended that the devolvement be gradually completed with the provinces spending on subject areas such as education and health, while the federal government expenditure be realigned with its constitution mandated areas.

Apart from these, the federal government also spends on institutions like HEC. All of these represent potential saving areas for the federal government, he added.

The rationalization of overlaps between federal and provincial recurrent spending provides opportunities for fiscal savings. Spending on federal ministries focused on devolved subject areas can be gradually reduced and eventually eliminated.

The bank further stated that the federal government continues to engage on devolved subjects through semi-autonomous bodies that focus on devolved service delivery areas, such as the HEC and the NCHD. These institutions can be completely devolved to the provinces. In addition, there continues to be significant federal development spending on devolved areas.

A refocusing of federal development spending on federal domains, therefore has large savings potential annually for the federal government of around PKR 315 billion or 0.5 per cent of FY22 GDP.

Provinces to implement property and agricultural taxes to meet devolved expenditure responsibilities, reducing the burden on the federal government.

The bank also recommended for increasing cigarette excises while urging for collapsing the two tiers into a single one and levy the premium excise tax rate, applied on an ad-valorem basis to allow automatic indexation to inflation. This could potentially result in around PKR 270 billion or 0.4 per cent of FY22 GDP in terms of additional revenue, the bank official added.

Copyright Business Recorder, 2023