The medium-term budget framework (MTBF) and medium-term development framework (MTDF) of Punjab have shown that the budget deficit would reach Rs 37.3 billion (about $622 million) in FY2008 and further to Rs 55.9 billion ($932 million) and Rs 42.8 billion (about $714 million) in FY2009 and FY2010, respectively.
Over the medium term, the Planning and Development Department sources said that the sustained growth in Punjab and pro-poor spending put immense pressure on financial resource mobilisation. The government's financing needs will be significant if it is to sustain its target of 7 percent economic growth, create over one million new jobs each year, and raise spending in the social sectors.
According to official sources, the surplus in the net public account in FY2008 somehow relieves the financing pressure, but the overall financing requirement from FY2008 to FY2010 remains significant, averaging around $890 million per year. Absorbing the proposed disbursement of about $300 million yearly will not impair fiscal sustainability. The World Bank estimates show that the net present value of provincial public debt as a percentage of provincial GDP will decline from 1.9 percent in FY2006 to 1 percent in FY2010.
Effective public resource management is a key contributor to economic efficiency, broad based economic growth, employment creation, poverty reduction, and social progress. Reforms in all the four core policy areas of the Punjab Government Efficiency Improvement Program (PGEIP) are essential for providing good governance, creating fiscal space, reducing waste, improving value for money in public finance, and improving public service delivery. Reforms under the PGEIP are crucial in sustaining development in the Punjab, and the opportunity cost of not undertaking reforms will be very high, sources said.
The Planning and Development Department sources said that the financial and economic costs associated with the reforms are expected to be substantial, given the scope of the reforms. Political costs are considerable, as initiatives such as civil service reforms, will significantly shake up the vested interests that benefit from weak governance.
Direct adjustment costs include the following: (i) capitalisation of Punjab Pension Fund (PPF) and General Provident Investment Fund (GPIF), (ii) implementation costs to improve public financial management systems, (iii) increased wage costs as civil service reforms bring compensation more in line with the market rate, (iv) costs to leverage reforms that may face resistance through consensus building, and (v) reduced revenue to the government due to lower compliance costs. While there are costs associated with reforms in the short run, the eventual economic benefits will greatly outweigh the costs in the long run.
Sources said that Punjab Government has laid down an ambitious 'Vision 2020' aimed at doubling per capita income over the next decade. This will require sustained broad-based economic growth, which in turn demands large efficiency improvements in both private and public sectors, accompanied by better public resource management.
Through the Asian Development Bank (ADB)-supported Punjab Resource Management Program (PRMP), implemented during November 2003-August 2007, the Punjab Government has introduced wide-ranging reforms in public resource management. It has enhanced revenues, rationalised expenditures, improved planning and budgeting, and developed the private sector and the civil service.
In parallel, the Provincial government has also implemented reforms in service delivery, through the ADB supported Punjab Devolved Social Services Program (PDSSP), and in the judiciary, through the Access to Justice Program (AJP).
Having laid down a broad foundation for reforms through these three major ADB interventions and support from other development partners in the governance, education, and infrastructure sectors, the Provincial Government launched its second-generation reforms at the fourth Punjab Development Forum in April 2007. These reforms are centered on creating an effective public sector and fostering a dynamic private sector to achieve the 'Vision 2020' goals.
P&DD SOURCES SAID THAT THE SIX KEY PILLARS OF THE SECOND-GENERATION REFORMS ARE THE FOLLOWING:
(i) efficient public financial management, to increase the fiscal space for higher pro-poor spending;
(ii) a fully funded and well-governed civil service pension system, to support prudent fiscal management and ensure retirement income security for civil servants;
(iii) civil service reforms, for a responsive, efficient, and effective civil service;
(iv) broad measures supporting private sector development, for economic growth, job creation, and poverty reduction;
(v) attainment of the Millennium Development Goals (MDGs) by 2015; and
(vi) improved access to justice, for greater legal and regulatory certainty and enforceability in all economic spheres.
Building on the PRMP and other programs, P&DD sources said, the PGEIP will support the Govt. in realising the long-term goals expressed in 'Vision 2020', through which the government has committed itself to significantly improving the standard of living of the people of Punjab, especially the poor and vulnerable. The PGEIP will improve the overall functioning of the provincial, district, and municipal governments and the quality of public services.
THE IMPROVEMENTS WILL TAKE THE FOLLOWING FORMS: (i) greater performance-oriented planning and budgeting; (ii) a more efficient civil service, with adequate incentives and merit-based appointment and career progression; (iii) a funded and well-managed pension system, which increases the confidence of civil servants and the public, and generates fiscal space for high-priority investments in the social sectors; and (iv) greater private sector contribution to growth and facilitation of public-private partnerships.
As reforms in these areas are complex and would take time to filter through the bureaucracy, PGEIP will be processed as a program cluster comprising three single-tranche Sub Programmes.
This modality provides adequate flexibility to meet emerging reform needs and use program conditions genuinely for policy reform, rather than as rigid prescriptions. ADB's Management and Board will also have greater involvement in recommending measures for future operations within a cluster, in a way that is not possible in traditional multiple-tranche operations.
In order to ensure that all the six pillars of the 'Vision 2020' are in place, Punjab Government has also sought ADB's support for accelerating the attainment of the MDGs and implementation of provincial-level judicial reforms, in addition to the government efficiency improvements under PGEIP.
In line with this request, ADB will also prepare two additional program clusters, namely the PMDGP and PAJP, in an integrated manner along with PGEIP over 2007-2011.
The integrated approach will improve program co-ordination, reduce duplication, minimise inconsistency in policy advice and measures, and focus resources for desired outcomes. The reforms under the three program clusters will accelerate and sustain economic growth, improve the delivery of public services, create more employment opportunities, and reduce poverty.