Balochistan’s interest repayments have exceeded Rs250 million per month taking the overdraft to highest ever at Rs16 billion. The provincial government has been forced to freeze its current expenditure and development programme almost at the last year’s level. The province would now have to spend Rs3 billion per year in the shape of interest payments.

Balochistan is currently trapped in debt both emanating from the State Bank of Pakistan as overdraft and the federal government as cash development loan (CDL).

Prior to the announcement of the Budget 2006-07, the provincial government’s loans with the State Bank stood at Rs15 billion after interest payment of over Rs262.7 million. The centre’s principal CDL to the province currently stands at around Rs6 billion. The overdraft accumulated in financial years of 2003 and 2004 to Rs12 billion due to excessive borrowing for current expenditure and repayment of CDLs.

The province is returning loans at high rate interest. Yet, the pace of increase in the overdraft has been contained in the last couple of years. Its overdraft came down to Rs13.8 billion last year. It has now reached about Rs16 billion. This year, there was practically no increase in Rs5 billion current expenditure of the last year, except of about Rs37 million additional burden rising out of an increase in salaries announced by the federal government.

The CDLs carry about 17-18 per cent interest rates. Balochistan has yet not been allowed to repay its CDLs by cheap banking sector loans. Commercial banks are ready to lend money to provinces at lower mark-up rates.. Under the Constitution, the provinces cannot borrow directly from the banking sector without taking permission from the centre. The centre has acquired fiscal space by rescheduling its foreign debts and the same principle has not been applied to cash development loans to provide relief to the poorest province.

As there is no major revenue-yielding provincial tax , the province has to excessively depend upon the resources received from federal government through the NFC award. According to independent economists, Balochistan is most hard-hit by the interim NFC award. The new financial arrangement created a sharp north-south divide in Pakistan benefiting most the two provinces, the NWFP and the Punjab and making the two southern provinces Sindh and Balochistan more pauperized.

In the new NFC award, it was decided that no provincial nature of project will be financed or co-financed from the federal Public Sector Development Programme (PSDP) due to an increase in share of provinces from the Federal Divisible Pool.

For the fiscal year 2006-07, Balochistan is to set aside a major portion of its budget for repayment of interest and principal amounts of loans to the federal government, leaving limited fiscal space to fund its development programme or meet the current expenditures. Moreover, Balochistan has lost 2.5 per cent general sales tax (GST) distribution. The share of the GST now directly goes to the districts, compared with its last year share of about Rs18 billion.

The provincial Public Sector Development Programme (PSDP) has also been frozen at last year’s Rs7-8 billion, which actually means that development allocations have come down this year when seen in the context of general inflation and currency conversion rates.

There has been no progress on Balochistan’s dispute with the federal and Sindh governments over equitable distribution of royalty and gas development surcharge (GDS). The unresolved issue of sharing the GDS also deepened financial crisis in the province. The reduction in the province’s gas revenue, particularly the GDS for the current year has adversely affected the PSDP.

For the FY 2005-06, Balochistan was to get Rs5.3 billion from the GDS but it was revised down to Rs4.8 billion. However, for the current fiscal year, Balochistan received only Rs3.5 billion from the GDS. This reduction of Rs1.3 billion proved a serious blow to the financial health of the province. Islamabad had reportedly informed the Balochistan government about reduction in the GDS amount for this year.

There are billions of rupees in gas arrears that are outstanding against the federal government. The total revenue for the province should be around Rs14.647 billion keeping in view the wellhead prices of the three wells - Sui, Pir Koh and Loti.

According to an estimate, the GDS revenue payable by the Sui Northern Gas Pipeline Limited (SNGPL) from Sui (on the basis of well-head prices) alone is around Rs11.6 billion and from Loti and Pir Koh gas fields it is about Rs1.334 billion, a total of Rs12.927 billion. However, the revenue supposed to be paid to the government of Balochistan from the Sui Southern Gas Company Limited from Sui wells is around Rs1.72 billion. Ironically, while the federal government is arbitrarily subsidising the sale of natural gas from Balochistan to consumers in other provinces without its consent, the province is left with no funds to finance its annual development programme.

Balochistan has been in throes of financial crisis sincet got the provincial status in 1970. Even today, though the province is facing worst financial crisis, it has still been unable to recover Rs600 billion dues owed by the federal government on gas from Sui field and Rs9 billion in arrears from the Sindh government in connection with Hub water.

It could not get even its just share in gas development surcharge. Balochistan actually presents a classic example of a province on the country’s political periphery that is heavily dependent on the centre to meet its financial needs. Ironically, the outstanding dues against Balochistan are recovered by the centre promptly while the province’s outstanding dues against the centre and other provinces are not being paid.

The province has been managing its affairs on loans and subventions, and hopes and promises. Presently, it is hoped that a reasonable amount of royalty on gas that had been held up with the federal government for many years would be retrieved in a few weeks.

These receipts would hopefully reduce current account deficit of the province by over Rs1.5 billion. The provincial government is also expected to get two separate tranches of the Balochistan Resource Management Programme (BRMP) and the Devolved Social Sector Programme (DSSP) in the current year that would help reduce CDL by about Rs2 billion.

Similarly, Prime Minister Shaukat Aziz during his recent visit to Quetta announced a special package of Rs19.5 billion for Balochistan to help the provincial government overcome financial crisis and gear up the pace of development activities.

Merely loans, subventions and promises can not get the province out of its perennial financial problems. A sustainable strategy is needed to overcome the province’s financial crisis and to put it on the road to self-reliance.

As a first step in this direction, all Balochistan’s dues, which are outstanding against centre and other provinces, should immediately be paid to the province. The federal government should also consider writing off the Balochistan loans, as the province has been a calamity hit area for the past one decade due to the long spell of drought. It is bearing the high costs of maintaining law and order owing to the military operation currently underway in the province.