Balochistan has informed the federal government that it would be impossible for it to bridge the widening the fiscal gap in the budget FY 2006-07. It is facing an uphill task in budget-making.
The province is confronted with serious financial difficulties and its debt servicing liabilities are continuously increasing. There is also the threat of a looming drought. The law and order situation is not satisfactory either and a rising burden on the provincial exchequer. The issue of gas development surcharge (GDS remains unresolved.
Officials say the situation has become no better with the trade off between share of provinces in federal PSDP and the increase in their share from the divisible pool under the recent interim NFC Award.
In the absence of any major revenue-yielding provincial tax levying authority with the province, Balochistan has always remained at the mercy of centre for meeting its financial needs and obligations. It generates a paltry sum of Rs1.5 billion revenue from its own resources. The province’s own revenues ( tax and non-tax) constitute just about five per cent of the total budget of Rs13.5 billion. It is excessively dependent upon the resources received from federal government through NFC award.
In the past, the federal government did not present any award for 17 years for which the province suffered badly. The NFC projection from 1997-98 to 2001-02 was estimated at Rs113 billion. But the actual amount received was Rs92 billion during the five-year period. The constraints on funds have been attributed to the shortfall in federal receipts amounting to Rs20,8 billion under the NFC Award since 1997.
The provinces are now being promised additional funds of Rs51 billion under the interim NFC award announced by President General Pervez Musharraf in the absence of a consensus among provinces on how to share the Divisible Pool. Balochistan’s share would go up to about Rs32 billion including subventions and share of the general sales tax directly going to the districts, compared with its current year share of about Rs18 billion.
The Rs46.37 billion provincial budget 2005-06 was the third consecutive budget without an NFC award. It allocated Rs34.61 billion for the current expenditure against an expected revenue income of Rs27.55 billion, showing a gap of Rs5.44 billion. An additional sum of Rs8 billion had been demanded from the federal government to fill the gap. With an operational shortfall of Rs5.44 billion in the revenue budget, the overall deficit was as high as Rs16.54 billion.
Balochistan has been heavily dependent on the federal assistance for development resulting in frequent tussles between the province and the federal government over the fund disbursement. The centre has informed the provinces that in view of an increase in their share of the provinces from the divisible pool, none of their projects would be financed or co-financed from the federal PSDP from next financial year (2006-07). The status of the ongoing projects will remain unchanged.
The gas development surcharge (GDS) issue has also kept the province economically underdeveloped and poor. It has to live on subventions and overdrafts. The province’s share in the gas development surcharge, excise duty and royalty in the FY1996-97 was 36 per cent. In 1995-96, this share was 50 per cent. The federal government grants together with the federal excise on gas and the provincial royalty on it, used to make up from 70 to 80 per cent of the provincial government’s revenue budget before the NFC Award of 1991.
Although the gas revenue surcharge has been diverted to the province, the situation is not much different, as the federal budgetary grants had been made non-obligatory in NFC 1991. The Award had resulted in an increase in the federal tax assignments to the province from federal divisible pool.
The federal government has not yet resolved the contentious issue of sharing the (GDS) in the case of Balochistan. The senior provincial minister, Maulana Abdul Waseh has criticized the federal government for ignoring the pressing financial needs of the provincial government and for not paying heed to the Balochistan’s legitimate share in GDS.
The inter-provincial committee under Senator Dilawar Abbas had recommended a formula for an increase in Balochistan’s share of the gas development surcharge and royalty but that had not been implemented. The formula for sharing of GDS equally by the provinces producing gas had received universal acceptance, but it has remained confined to official documents.
Balochistan has urged the federal government to appoint an arbitration commission to settle its dispute with Sindh over gas development surcharge and royalties through arbitration, as the bilateral negotiations have failed.
Interest payments: The province’s debt burden is increasing and it is paying Rs6 billion annually as interest on loan. Its financial position is critically weak. To tide over its difficulties, Balochistan government was compelled to sign an agreement with the State Bank of Pakistan to convert its more than Rs10 billion over-draft into a block loan. Balochistan’s debt liabilities have increased to Rs16.5 billion, escalating its interest payments.
Ironically, the provincial Annual Development Plan (ADP) has been a debt funded programme. The ADP was at Rs9.3 billion during FY 2003-04. Originally the budget had earmarked only Rs2.0363 billion but the prime minister’s special package of Rs1 billion was later included in the PSDP. It also contained foreign assistance of Rs1.1926 billion.
The federal government had launched a Resource Management Programme from Asian Development Bank to provide Rs2.8 billion to finance development schemes in the province. It was a loan, not a grant. It further increased the debt servicing liabilities. The fact of the matter was that out of the $100 million ADB Resource Development credit Rs3 billion were to be used for retiring costly debts and remaining Rs2.8 billion for financing the development projects.
During the FY 2005-06, Rs11.76 billion had been allocated for ADP, which included Rs2.76 billion foreign assistance, Rs2.70 billion as second tranche of Balochistan Resource Management Program (BRMP) and Rs600 million in technical assistance from Asian Development Bank.
Balochistan’s pre-budget financial resources will further diminish as Asian Development Bank would not release its second tranche of the BRMP. The provincial government had reduced its current expenditure from Rs34 billion to Rs29 billion, which would again rise to Rs31 billion, creating financing problems in the next fiscal.
Drought: The Meteorological department has warned of a possible drought over the next two months. The drought, feared to hit Balochistan first, will affect agriculture, livestock, horticulture and human lives. Moderate drought conditions, according to the Met office, have already developed in the province, which are likely to worsen in the coming months.
The province received less rains in January and February. Presently, the districts of Chagai, Kharan, Panjgur, Kech and Gwadar are in the grip of a moderate drought. The drought may hurt official efforts to mitigate effects of the last drought on the livestock sector in the province.
For the past many years, Balochistan has been reeling under the devastating impact of natural calamities like drought, flash floods and heavy rains. Before 2003, eight year long spell of drought had brought disaster to agriculture and livestock. All the districts except two were officially declared calamity hit regions in the province. Nearly 1.2 million fruit trees were totally dried up and 0.8 million fruit trees were partially hit by the drought. The population living below poverty line jumped from 50 to 70 per cent in rural areas.
Agriculture always remains exposed to the threat of natural calamities like drought. The sector is the mainstay of provincial economy, as over 75 per cent of the population lives in rural areas. The crops contribute about 62 per cent of gross farm income. In view of the looming water crisis, the allocations need to be made in the new budget to integrate risk reduction measures in development programmes.
Law and order: The law and order is another area on what Balochistan has been spending massively and it will need more funds in the next fiscal year 2006-07 for bringing an improvement in the prevailing security situation. A military operation (which is not without its economic costs) is currently being undertaken against militants who are allegedly firing rockets at gas installations, railway tracks and public properties. It has had a negative impact on the on-going economic activities in different sectors like mining, oil and gas exploration and so on.
Being the poorest and least developed province and having a fragile fiscal base, the province rightly qualifies for PSDP resources even after its share in the divisible pool has been increased. The UNDP Pakistan National Human Development Report 2003 has found that out of Pakistan’s top 20 most backward districts, 50 per cent are located in Balochistan. The province is in dire need of resources to combat backwardness and to come out of the under-development trap.
Balochistan has informed the federal government that it would be impossible for it to bridge the widening the fiscal gap in the budget FY 2006-07. It is facing an uphill task in budget-making.
