NFC: The Provinces woes

Society Pakistan & World Affairs
1

This is a very complex issue..and probably at the heart of antagonism between the federal government and the other three provinces.

Financial woes of Sindh

http://www.dawn.com/2004/text/ebr5.htm
By Sabihuddin Ghausi

Sindh’s finances continue to remain plagued with the chronic problem of matching expenditures with inadequate and uncertain availability of resources. With a ridiculously small provincial revenue base ,-hardly Rs 15 billion in a budget of Rs 105 billion- the Sindh government depends to the extent of almost 85 per cent on federal transfers.

And as a regular practice, the federal transfers are tentative and take more time than scheduled. More than 63 per cent of the budget resources go for wages and salaries of the employees, 16 per cent to service debt to Islamabad, about 3 per cent to subsidies and within 18 per cent the province has to upkeep its existing stock of assets and plan to create new assets for meeting future needs.

The only strategy is to cut down on development efforts and keep on increasing employees strength-now estimated at more than 450,000-to provide employment. The end result is depletion of the social and physical infra- structure. The problem is aggravating because of endless stream of immigration from Punjab and NWFP.

“Actual development expenditure has been much less than the allocations” says World Bank in a draft report on “Provincial Financial Accountability Assessment” prepared in March this year. The World Bank blames Finance Department of Sindh for “the occasional cuts” on development schemes because of non- availability of resources. “A large number of development schemes were thus accumulated in the pipeline” the report says.

A report of Sindh government also calls the province a "graveyard of development schemes’.It accuses politicians for pressuring the government to draw up ambitious and cosmetic schemes which are never completed and have to be abandoned halfway.

For the current fiscal year, at the time of budget presentation in June last, the Sindh Finance Minister was more than confident of getting 100 million dollars (roughly Rs5.80 billion) grant from the International Development Agency, an affiliate of World Bank and Rs5 billion compensatory grant from federal government for meeting 15 per cent rise in salaries and pensions of the government employees.

Later, officials were optimistic of getting 120 million dollars (about Rs6.84 billion) assistance from Asian Development Bank. It was expected that roughly two-third of this amount-Rs 4.25 billion plus-would have been used to repay the expensive capital development loans and one-third would be given to support the district governments.

Had these promised financial assistance materialised, the Sindh government would have managed to create some fiscal space in the budget for development. Till this day, the Sindh government functionaries wait for the receipt of these promised amounts. Neither the assistance from IDA and ADB has come nor the federal government has offered Rs5 billion grant to the provincial government.

Instead the Sindh government’s revenue expenditure has increased by Rs4.5 billion because of the 15 per cent rise in wages and perks of the serving and retired government employees. Subsequent rise in cost of petroleum products has also led to increase in revenue expenditure. The last straw on camel’s back has come in form of wheat crisis. Sindh provides a subsidy of about Rs4 billion which may go over Rs7 billion if the wheat is imported in next few weeks.

The only consolation is that improvement in total tax collection (Rs134 billion) in last five months of 03-04 has not caused much delay in transfer of Sindh’s share of resources from Islamabad.

But definitely Sindh’s development efforts have been hampered by the paucity of resources. So much so that it brought a flak from President General Pervez Musharraf who made a full dress review of projects in Karachi during December. He was visibly unhappy on delay in implementation of many infrastructure projects in Karachi. The officials were found blaming each other and eventually the president asked the Chief Secretary of the province to coordinate among various agencies.

In June last, the Sindh government has presented a deficit free budget for the current fiscal year on the expectation that Rs11 billion resources would be made available. The government negotiated 120 million dollars with Asian Development Bank to create enough fiscal space in the budget so that development efforts could be accelerated.

But all credit to Sindh government for not concealing the facts. While presenting a Rs1.36 billion operational surplus in the revenue budget for 2003-04 , the government declared in unambiguous terms that “provincial funding and contribution to the over sized public sector development programme (Rs14.73 billion) is subject to the availability of resources”. Sindh’s current fiscal year’s development programme include Rs 11 billion annual development programme, Rs 1.30 billion drought emergency relief assistance (DERA) and Rs2.43 billion foreign aided programmes.

Obviously,the Sindh government has not been able to create enough fiscal space in the current fiscal year’s budget that could facilitate transfer of resources for development activities at the provincial and district levels. During last fiscal year (2002-03) too, the Sindh government has estimated Rs11 billion ADP but could provide hardly Rs5.75 billion.

It is not only the paucity of funds that afflict Sindh’s development but the growing bitterness and acrimony between the MQM dominated provincial government and the majority of the 16 district governments in the province where nazims have been elected from Jamat Islami or PPP.

During 2002-03, the provincial government held as many as 30 meetings with the nazims and naib nazims of the district governments. This year too, there have been many meetings but the district and provincial governments continue to trade accusations. Nazims from Karachi, Hyderabad, Khairpur and a few other districts blame provincial government of releasing their share of funds with inordinate delay.

For next fiscal year, the federal government wants the provincial government to start sending their development schemes from first week of January. Islamabad planners want provincial development schemes to review and scrutinise before integrating all these proposals in national development outlay. Expectations are that development outlay for next fiscal year would be more than Rs200 billion. There are optimists in Karachi who are confident that next development outlay would be more than Rs230 billion and provinces and district governments would be given more responsibilities in carrying out the job.

But all said and done, the provinces wait for the final outcome of the National Finance Commission (NFC) deliberations. President Musharraf has promised a better deal for the provinces this time. Things should become clear by end March next.

2

A focus on Sind again
province in troubled waters

By Sabihuddin Ghausi

In a highly over-centralized financial, administrative and political structure like Pakistan’s, where the federation levies, manipulates and collects more than 90 per cent of the revenues and controls almost all spheres of economic activities, the provincial economy is difficult to define. That is because Islamabad doesn’t encourage the provinces to calculate their own GDP.

** The principle of making population as the only basis of distribution of resources and the allocation of jobs has crippled the economies of the three smaller provinces, namely, Sindh, NWFP and Balochistan. **

In 2003, Sindh remained the biggest revenue generating province of the country, contributing as much as about 70 per cent of the total taxes. With almost 50 per cent urban population and 50 per cent literacy rate, its economic contribution to the national economy is more than the other provinces. In February, the Sindh Assembly demanded a new NFC. It proposed a revised formula for the distribution of revenues under which the provinces would pay the centre according to their population.

Sindh continued to be a rich province in resource production but poor in funds. It produces 48 per cent of total gas production in the country, 39 per cent of total electricity generation, and 62 per cent of the indigenous oil and 31 per cent of coal. The province is not impoverished but is starved of funds as it depends on the federation for debts. In 2003, it was the most indebted province in Pakistan. It has to pay back Rs118 billion to Islamabad of which it has so far paid back Rs98 billion, most of which (Rs80 billion) has been the interest amount. Sindh expects to clear its entire debt by 2025.

Although the province accounted for 40 per cent of the country’s industrial production, it remained the biggest hub of the services sector and made an impressive contribution in agriculture. ** The unemployment rate in Sindh is the highest. The national unemployment ratio was 7.8 per cent but in Sindh it was in double figures, particularly in Karachi where social scientists estimated that more than three million young men and women were out of job. **

Unconfirmed reports suggested that about 1,000 young men from upcountry arrive every day in the city, mostly from Punjab and the NWFP in search of jobs. “Each immigrant costs roughly Rs32,000 a year in terms of utilization of infrastructure facilities,” the Additional Chief Secretary Planning and Development informed Dawn.

Water has also been a critical problem. First it was the drought and later in the year, there was flooding due to heavy rains. Demands were made to declare the province as calamity-stricken and also to give Sindh its equitable share of the Indus water. No wonder Sindh was so perturbed by the prospects of building the Kalabagh dam and the Thal canal became a big issue.

link

3

http://www.dawn.com/events/overview2003/sup8.htm

Province of a lesser god

By Saleem Shahid

The upswing in the national economy made no impact on Balochistan as life remained dull for the whole of 2003. The province never attracted investment, both foreign and domestic. It remained outside the economic mainstream of the country where ministers and investors seldom come.

A huge province with a diversified economy, it is difficult to understand why Balochistan has failed to attract the attention of the entrepreneurs. In the border regions close to Iran, life is made sustainable through the movement of kitchen items. Had it not been for the local economic activities, the remote areas would not receive any food. In other words, Pakistan’s national economy has not sufficiently contributed to make economic activities viable in Mekran, Kharan and Chagai.

** The impact of drought was deadly. It destroyed 80 per cent of the livestock in the drought-affected districts, which further threw people to poverty since almost 90 per cent of them depended on their cattle to generate some extra income. The international aid agencies estimated that poverty was around 50 per cent prior to the drought. It went up to 75 per cent on account of the prolonged drought remained for over six years. **

Agriculture and fisheries, the informal sectors, had a minimal impact on the provincial economy. The cotton crop emerged as an additional item in the agrarian economy of Balochistan and was expected to produce around 150,000 bales of fine quality cotton last year. It is not yet known what price the growers will get - the market price or the price fixed by the federal government. The growers have no say in the matter.

  • The rest of the crops have no market and no buyers, as the growers are unable to meet the transportation charges even if they were willing to market them to Karachi, Multan, Lahore or Sukkur, which are in all four directions of Balochistan borders. *
4

NWFP has been desperately trying for a fair deal from islamabad for the last 30 years ..to no avail.

Frontier likely to soften stand: Net Hydel Profit
http://www.dawn.com/2004/text/nat14.htm

Bureau Report

PESHAWAR, Jan 9: Following the federal government’s assurance to facilitate the arbitration process between NWFP and Wapda over the contentious issue of net hydel profit, the NWFP government is likely to retract from its earlier announced hard line when it linked the signing of the new national finance commission (NFC) award with the resolution of its grievances.

Well-placed official sources told Dawn on Friday that in the light of the assurance, the provincial government is not likely to adopt the hard course to get its voice heard.

The provincial minister for finance, planning and development Siraj-ul-Haq had announced, a few days back, that NWFP would not sign the new NFC award till the time its demands vis-a-vis net hydel profit issue were looked into through a meaningful dialogue with Wapda under the auspices of the federal government.

** Besides, NWFP has also lodged a claim of Rs 345 billion arrears accumulated against Wapda due to non-payment of annual share on account of net hydel profit to it between the 1973-74 and 1990-91 financial years. **

Responding to the stand adopted by the provincial government, the federal finance minister Shaukat Aziz, in a meeting with the provincial chief minister Akram Khan Durrani at Islamabad - two days before the Muttahida Majlis-i-Amal and PML(Q) signed the agreement on the LFO - assured him that NWFP’s differences with Wapda would be resolved through arbitration.

Official sources said that provincial government, at present, had focused on starting preparations for the arbitration process likely to be launched shortly following the nomination of an arbitrator by the federal government and one representative each of the provincial government and Wapda by them, respectively.