Re: Development budget increased by 109% since 2002-2003
Interesting article on Baluchistan:
Paddle-less and up the creek
By Dr Faisal Bari
Balochistan budget for 2006-07 was announced a few days ago. It was also the day that General Musharraf and Prime Minister Aziz made statements that the development of Balochistan was a priority for the federal government. If the proposed budget is any indication to go by, I wonder what the condition of Balochistan would have been if it was not a federal priority. **Although the provincial government has tried to cut own non-developmental expenditures as much as possible and even said that it has instituted many austerity measures, it is still expecting a deficit of Rs. 10.96 billion for 06-07. **
**This is slightly larger than the total development budget of the province, about 18 percent of the budget, four times taxes raised by the province directly and almost one third of the total receipts expected from federal government. The Rs. 10.96 billion deficit has been projected after figuring in and allowing for the Rs. 12 billion odd expected from the Asian Development Bank (ADB) as loan under Balochistan Resource Management Programme (BRMP) and Devolved Social Services Programme (DSSP).
If the ADB does not agree to release the money under either head, for one reason or another, or there are delays, Balochistan deficit is likely to be much larger. Furthermore, Balochistan already has significant loans from federal government under Cash Development Loans (CDLs) and other facilities, and from the State Bank of Pakistan - initially as overdrafts which were later turned into long term loans - so its loan bearing capacity is not going to be high as well, and if the deficit is Rs. 10 billion or larger, this surely spells trouble for the province. **
The federal government is insisting that it is doing a lot for the province by starting mega projects in Balochistan and by spending a lot through the federal PSDP. This might be true but it does not address the issue of provincial budget, provincial priorities and sustainability of provincial finances.
The province is in deep trouble and the budget 06-07 clearly shows that. The government of Balochistan (GoB) presented a budget of Rs. 59.7 billion, with current expenditures expected at Rs. 37.45 billion and development expenditures of Rs. 10.82 billion. The projected deficit is Rs. 10.96 billion, while last year’s deficit was Rs. 8.47 billion. With accumulated debt being high, it is going to be increasingly difficult for the government to finance this deficit. The government of Balochistan has announced that this deficit will be covered by the province through a) austerity measures, b) additional resources generated by the province, and c) grants from the federal government.
There are problems with all three. If Quetta could institute austerity measures to a certain tune, why did it not incorporate the expected benefit of these in the form of reduced expenditures in the budget figures itself? If it can generate additional tax money, why is it not already reflected in the budget figures? Federal grants can only be an expectation of course. What if Islamabad does not oblige with additional handouts? Balochistan government should be aware that just a few years ago instead of giving additional grants, the federal government had asked Balochistan to negotiate the BRMP loan with the ADB and it had taken more than a couple of years for that loan agreement to be reached. The problems that Balochistan is facing has many sources, we will discuss the main ones here. On the expenditure side Balochistan has a number of significant expenditures that do not make sense and need to be quickly restructured.
The wheat and tubewell subsidies are non-targeted, wasteful and very inefficient. They need to redesigned or phased out. The tubewell subsidy in particular is very anti-poor and wasteful even in terms of water and electricity usage. They constitute about Rs. 3-5 billion of GoB’s expenditures. Development expenditures are too spread out and there are far too many schemes in the provincial portfolio so that the throw-forward of even the current schemes is very long. If Balochistan decides not to start any new scheme from now on, it will still take Balochistan 5-7 years to complete the pending schemes, at current levels of development expenditure.
And there is high level of corruption and wastage in Balochistan’s development expenditure so that the effectiveness is also low. GoB has to prioritize its development spending, reduce the number of schemes, add only schemes that are high priority, and impose stricter completion timetables on schemes. On the revenue side GoB can raise some more funds by imposing better structured property taxes, road usage taxes and with better recovery on water and other usage charges. But the effect of all of these is not going to be more than a couple of billion rupees at best. Still this is important to achieve so that GoB can signal its seriousness in getting the provincial house in order. The most significant issues related to Balochistan come from its relationship with Islamabad. The federal government continues to favour a distribution formula for National Finance Commission (NFC) award that is based solely on population.
Balochistan has 40 plus percent of the area of Pakistan, only 5 percent of the population, and has the largest number of the least developed districts of Pakistan. Any population based formula is going to leave Balochistan with very little funds. The population based formula is also unfair since it does not take into account the need for fixed expenditure in creating the infrastructure needed to cater to a thinly spread out population over a very large area. So Balochistan gets a very small share in the NFC. The federal government has recently argued that in the current NFC they have given all the provinces more money. Since the additional funds have also been divided on the basis of population, the share of Balochistan is very small. Federal government does give some grants and subventions to Balochistan. But these are ad-hoc, at the whim of the federation and quite low. They do not address the issue of the unfairness of the award. An award that gives weight to backwardness and area, in addition to population, would be needed to address the imbalance.
The other imbalance comes from how gas and oil resources of the province of Balochistan are used by the federal government. It is strange that the Constitution of the country makes a distinction between major and minor minerals and asserts the rights of the federation over the provinces over all major minerals (oil and gas in particular), but it allows the province of the Punjab to impose Section 144 on the sale and transport of wheat across provinces and even district lines in order to allow the Punjab government to procure wheat at the cost of potential buyers from other provinces. Balochistan does get some royalty on major minerals, but the right to set royalties, any surcharges and even procurement prices lies with the federal government. The net result is that Balochistan has historically and is even currently getting much less for its resources than what market determined prices would have given them.
This is grossly and patently unfair to the people of Balochistan and citizens of Pakistan. The imbalance needs to be addressed and immediately, and through appropriate changes in pricing formulae, ownership rights as well as negotiation rights. If Balochistan were to get Rs 5-10 billion more per annum from gas and oil revenues, it could change the situation of the province significantly. I have always wondered why the people of Balochistan, the representatives of the people and the government of Balochistan do not raise these issues through the Council of Common Interest, and even the Supreme Court of the country. A number of hypotheses have been suggested by others. Some say that the people in power are there due to Islamabad and hence cannot take them on. Others say that the people of Balochistan do not trust that even these institutions will deliver justice. Neither of these explanations is very encouraging in terms of the future. GoB finances are in a mess and they are non-sustainable.
There needs to be a major restructuring. It is not enough for the federal government to just spend through federal PSDP and on mega projects; they have to help address the issues of the provincial government as well. NFC award needs to be made fairer and the issue of gas/oil pricing and provincial ownership needs to be addressed. GoB also needs to restructure its expenditures by removing inefficiencies, poorly designed subsidies and corruption, and increase its revenues by revamping its taxes. Only all of the above can save the provincial government from being in a crisis constantly. The consistent crisis situation probably favours some interest groups in Islamabad, but it can only spell disaster for the people of Balochistan and for the future of the country.
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