May 26, 2008	Monday	Jamadi-ul-Awwal 20, 1429

As usual, Balochistan is facing severe financial constraints in the budget-making for the next fiscal year. While grappling with its debt liabilities and interest payments, the cash-starved province is planning new development schemes. No new development projects were included in the current year’s development programme for want of funds.

To tackle its debt problem, Balochistan is trying to convince the State Bank to convert its Rs19 billion overdraft into a soft loan. The overdraft on July 1, 2004 was Rs10.3 billion and was going up ever year. Last month, the Chief Minister, Nawab Aslam Raisani led an official team comprising provincial finance minister, chief secretary and finance secretary in talks with the State Bank Governor Samshad Akhtar and requested her to convert the overdraft into a soft loan. He assured the central bank that would improve revenue generation and observe fiscal discipline.

The province has been paying 22 per cent interest annually on Cash Development Loan (CDL). The heavy interest repayments forced the provincial government to freeze its current expenditure and restrict its development programme. During the critical period, the interest payments amounted to Rs3 billion per year.

What the centre needs to do is to put in place a mechanism to reduce interest on Balochistan’s loan liability, reschedule the repayments or allow it to retire CDL through cheap bank loans, which would enable it to save on interest payments. The CDLs carry about 18-20 per cent interest rates. Commercial banks are ready to lend money to the province at much lower rates. Under the Constitution, the provinces cannot borrow directly from the banks without the centre’s approval. Enough fiscal space can be created through CDL’s rescheduling..

Social sector development--- a prime need- is neglected. In most of the districts in the province, the literacy rate among the female is even less than four per cent. Much of the expenditure goes to salaries, while non-salary expenditures are well below the norms for the effective functioning of the social sectors.

The provincial government has to focus on new development projects as no new scheme was included in the Rs10.81 billion Annual Development Programme (ADP) for 2006-07. For financing the ADP, the province had allocated Rs6.35 billion and Rs3.760 billion was expected from the foreign assistance. It also carried unimplemented development projects of Rs9 billion from the fiscal year 2005-06. In the budget for the current fiscal year, Rs13.47 billion ADP was by and large unfunded. Ironically, while the federal government has been arbitrarily subsidising the sale of natural gas from Balochistan to consumers in other provinces without Balochistan’s consent, it was left with no funds to finance its annual development programme.

Balochistan’s development poses more serious challenges to the new elected government. Presently, the provincial chief minister is seriously trying to bring the alienated nationalist leaders into national mainstream of politics. Though Gwadar port has gone into operations, the prevailing security environment cannot attract foreign investment. Already trapped in poverty and underdevelopment, Balochistan has been bearing the additional economic, social and human costs of the military action since December 2005.

The military operation pushed more and more people towards below-poverty line. It has adversely affected the economic activities and delayed the ongoing mega projects in the province. For instance, mega seaport project at Gwadar was delayed by two years and it could not become operational even after one year of its official opening due to worsening law and order situation.

Moreover, the large influx and displacement of poor people from Dera Bugti and Kohlu continued to exert pressure on the meagre resources of the host districts. Similarly, the blowing up of railway, power and gas infrastructure or bombings carried out during last two years were not without its economic costs. The province’s share in gas royalty had been reduced to Rs1.5 billion due to reduction in gas production hit by blasting of gas pipelines.

While Balochistan has been facing serious financial problems, it has billions of rupees outstanding against federal and Sindh governments. The gas surcharge dues include Rs128 billion owed by the federal government and Rs23 billion by the Sindh government. Moreover, over Rs.24 billion irrigation dues are outstanding against Sindh government. The reduction in the province’s gas revenue, particularly the annual development programme. For the FY 2005-06, Balochistan was to get Rs5.3 billion from the gas development surcharge but it was revised down to Rs4.8 billion. The provincial governor has reportedly asked the provincial government to take up with the federal government for the recovery of outstanding Rs150 billion gas surcharge from the federal and Sindh governments.

Balochistan has suffered seriously due to the NFC stalemate. It is most hard-hit by the interim NFC award. The province has developed serious differences over the decision of non-financing of projects from the federal development funds. Balochistan has lost 2.5 per cent in general sales tax (GST) distribution.

This year, mega seaport at Gwadar has gone into operations. Ironically, the province’s first deep sea port is not going to improve its financial health, as former provincial government had exempted Gwadar port operators from all local and provincial taxes for 20 years.