Much has changed about our budget-making methodology and traditional objectives of the annual exercise, but not yet enough. For decades our budget planners have over-estimated the revenue collection and availability of resources in the budgetary exercise and under-estimated the expenditure.
As the revenue collection inevitably fell short and the recurring expenditure, in the course of the year, went beyond budgetary estimates, the first casualty was the development expenditure. Within the development expenditure, the meagre allocation for the social sectors was freely cut and the country was littered with abandoned or half-completed development projects.
Things did start changing, though, after 1999. Successful implementation of first generation of economic reforms, aided by the removal of sanctions - post 9/11 - enabled the country to push the GDP growth rate to 8.4 percent. This high growth rate provided an historic opportunity to increase public investment in infrastructure and social projects. Last year, Prime Minister Shaukat Aziz's government presented a Public Sector Development Programme amounting to Rs 272 billion.
The federal share in the PSDP was fixed at Rs 204 billion and Rs 68 billion were to be spent by the provinces through their own ADP's. After years of neglect due to financial constraints, the higher allocations for social sector programmes as well as public sector projects were aimed to reduce poverty, generate employment and assist in skill development.
Higher investment was promised in health sector (72%); I.T. sector (57%); Science and Technology (52%); Education (50%); and Vocational Training and Higher Education (28%). It was hoped that this big investment in public sector with qualitative improvement in implementation would ensure a sustainable growth pattern.
However, half-way, in fiscal 2005-06, utilisation of PSDP was found to be below 40 percent. It was 50 percent in the first nine months and a report in this paper on Monday last places the utilisation of PSDP at 73 percent in the first ten months, better than 63 percent at the same time last year, and hopefully estimated to rise to 90 percent utilisation by end June 2006. Unlike previous years, when resource constraints forced the Ministry of Finance to hold back funds; Ministries and Divisions provided the MoF, in FY06, with their quarterly (expected) expenditure plan and the Accountant General Office was permitted to release the funds in accordance with the entire approved expenditure plan without any reference to MoF. Why then was the expenditure pattern adhered to previous years' despite availability of Funds? Because the implementation system has not changed.
First, the ongoing schemes have a 'throw forward' amount, ie the estimated cost less expenditure incurred during the year. Within this 'throw forward' is the allocation for the next year in the PSDP. There are upgradation and repair and maintenance projections from various ministries, and all schemes that were duly approved and are already in various stages of implementation.
The second category involves allocations for new projects approved by the Executive Committee of the National Economic Council (ECNEC). These projects have been recommended by the Central Development Working Party (CDWP) for inclusion in the PSDP.
These new schemes/projects undergo various scrutinies during the course of the year. They do not get the start-up signal until January/February when half the year has gone by. In addition, the projects being undertaken under provincial ADPs are dependent on the Services and General, Administrative Department (SG&AD) recruiting the staff and manpower for these projects. This also consumes six months or so.
All this results, in slowing down the implementation in the first half of fiscal year. Therefore, the real pick-up in utilisation of funds occurs in the last quarter of the year. It is feared that without wholesale revamp of the present system, any significant improvement in utilisation of funds and timely completion of projects looks improbable.
A detailed analysis shows that utilisation for infrastructure development until April 30th, 2006 has been in the range of 60 to 80 percent. As against this the Social Development Projects utilisation, in these 10 months, has faired poorly at 40 to 50 percent. Pakistan already lags behind peer countries in social indicators. Higher fund allocation in the PSDP for social development was and is still needed.
After years of neglect, the absorption capacity in both health and education is weak. Even the population division is not upto the challenge. Local governments are responsible for the ultimate delivery in education and health. The Presidential Commission, headed by the former Governor of State Bank, Dr Ishrat Husain, the foremost task should be to study the delivery shortcomings in these two critical fields.
Nazimeen are responsible for education, health, law and order and projects under the Khushal Pakistan Programme. However, the staff manning these sectors are administratively answerable to the provincial set-up. This anomaly needs to be corrected. The local governments need full autonomy in recruitment, selection, transfer and postings of staff. They must be permitted to directly recruit and develop district administrative cadre. Until then, the provincial employees at the disposal of the district governments must become accountable to them instead of the Chief Ministers. Without this the devolution process will not work and unnecessarily end up getting a bad name.