KARACHI, Feb 24: The World Bank has expressed doubts about the future viability of Sindh’s finances because of mounting deficits in budgets caused by a rise in salaries of the employees and a quantum jump in the size of annual development programmes. The sustainability of Sindh’s finances is doubtful even after an expected increase in federal transfers from the recent amendment to the National Finance Commission (NFC).

“As such, there is an urgent need to revitalize the fiscal reforms started in the year 2001-02 by broadening and deepening the base of these reforms to ensure the sustainability of provincial finances,” a World Bank report says. It is based on interaction of a World Bank team with the Sindh government officials last month in Karachi.

An eight-member World Bank team visited Pakistan from January 17 to 27 to continue its discussions with the Sindh government officials on reforms in education and financial management. The World Bank is holding a series of meetings with the Sindh government to prepare for a report on the Sindh economy which is due sometimes next month or in April.

While comparing the provincial finances during the mid-1990s, the World Bank team has found a “considerable improvement”, which is attributed to increased fiscal transfers from the federal government and the fiscal reforms taken up by Sindh in the early 2000s.

Under the Sindh economic reforms programme, supported by the World Bank through the Sindh Structural Adjustment Credit (SSAC), the province streamlined and restructured its own resource revenues, improved expenditure management and adopted a strategy to better manage its debt and deferred liabilities.

“The efforts adopted in the early 2000s to give a medium-term perspective to budget making seem to have been abandoned and the provincial budget continues to be prepared under antiquated procedures that have a short-term and input bias,” the World Bank team noted.

A casual glance of the World Bank report makes it clear that it is an indictment on the performance of Syed Sardar Ahmad as Sindh’s finance minister, without naming him directly, for failing to take up fiscal reforms implementation with zest and enthusiasm as was demanded and even deviating by allocating resources to new development schemes. Without naming, the report lauds Dr Hafeez Sheikh as Sindh’s finance minister during 2000-01 and 2001-02 who implemented fiscal reforms. Dr Hafeez Sheikh served in the World Bank for eight years before joining the Sindh government and is now again going back to the World Bank.

Note has been taken of slow process of computerization and automation of agricultural income tax. A drop in agricultural income tax from Rs550 million in 2001-02 to Rs257 million has been attributed to an increase in threshold level for collection of agricultural income tax from five acres to 12.5 acres.

The professional and calling tax has not shown any growth for the last three years partly because of provincial government’s inability to expand tax base and partly because some cantonment boards have decided to collect and retain the tax.

Exemption given to the selected properties from payment of property tax has also been taken note of.

The report reveals that from 2006-07, the Sindh government has agreed to implement a three-year plan as part of the medium-term fiscal framework for enhancing provincial own source revenue.

The World Bank now wants the Sindh government to give projection of expenditure on education in the budget relatively in more details than other sectors.

The report discloses that the authorities in Karachi have agreed to improve upon the procedures and processes of budget making and have indicated to prepare the budget for 2006-07 under a medium-term fiscal framework that would project: (1) provincial tax and non tax revenue (2) provincial recurrent expenditures by major provincial sectoral heads, including the impact of provincial debt management strategy and major provincial initiatives taken or (likely to be taken) and projects and programmes to be taken up or likely to be taken up in various sectors (3) provincial development expenditure, including the impact of various policy decisions (4) while projecting the sectoral expenditures, efforts will be made to project expenditures.

The World Bank team observed an imbalance in utilization of the fiscal space created in the Sindh budget achieved through retirement of federal government debt and improvement in province’s revenue position. A significant part of this fiscal space was utilized in payment of increase in the salaries of the employees, while the remaining fiscal space went into expanding the size of the development programme from Rs9 billion in 2001-02 to Rs18 billion in 2004-05 and Rs24 billion in 2005-06.

“Little or no increase was made in critical operation and management budget, and no attempt was made to create additional space by retiring some more of federal government debt,” the report adds.