THERE is a growing expectation on the part of Balochistan’s present political leadership that the next National Finance Commission award is little likely to significantly enhance the province’s share in the federal tax divisible pool to help it fill in the growing development financing hole.

“The chances of the federal government agreeing to a further cut in its share [from the divisible tax pool] are next to nothing,” Chief Minister Dr Abdul Malik told journalists at a breakfast meeting the morning after the province’s deficit budget for the fiscal year 2015-16 was presented in the Balochistan Assembly last week.

He was also not very hopeful about the reduction in the weight (82pc) assigned to population in the formula for the distribution of resources from the pool among the provinces or an increase in the weight (2.7pc) of the area.

So what options does the resource-constrained and sparsely populated province have to increase its financial resources to fill the development financing gap?

“We will fight our case at the forum of the National Finance Commission,” asserts the provincial adviser on finance, Mir Khalid Khan Langau.

Balochistan’s finance secretary Mushtaq Raisani expects the new deal with Pakistan Petroleum Ltd to bring in additional revenues of Rs15-20bn and raise provincial tax revenues by Rs5bn to over Rs8bn

“But at the same time, we are implementing a plan to significantly increase our provincial tax and other income. The additional income will help us cut down the budgetary deficit of Rs26bn — or 12pc of the total consolidated income of Rs217bn and over 10.7pc of the consolidated budgetary outlay of Rs243bn — at the end of the year.”

The provincial government expects to get 72pc (Rs156bn) of its total income from the federal divisible tax pool and 6.7pc (Rs14.72bn) in straight transfers, and raise 3.6pc (Rs7.85bn) from its own tax and non-tax resources.

This shows Balochistan’s heavy dependence on federal transfers because of its underdeveloped agriculture, industry and services sectors. The poor security condition has further eroded the base of provincial taxes and added an additional burden on its meagre finances.

The plan to generate additional resources include the formation of the Balochistan Revenue Authority (BRA) to collect the general sales tax (GST) on services and some other taxes, as well as hiring a consultant to recommend what kind of taxes and levies can be imposed at the local government level, and renegotiating the gas wellhead price with the Pakistan Petroleum Limited (PPL).

Balochistan’s finance secretary Mushtaq Raisani expects the new deal with PPL to bring in additional revenue of Rs15-20bn and raise provincial tax revenues by Rs5bn to over Rs8bn.

“The local government taxes will spare the provincial government another Rs5.5bn that has been set aside for their development programmes in the provincial annual development programme for the next financial year,” he told Dawn. “We are confident that we will successfully generate all these additional sources of income during the next fiscal year and cut our budgetary deficit.”

The budget documents show that the province’s development financing gap has been rising in spite of the significant increase in its share from the federal divisible tax pool under the 7th NFC Award, mainly because of the rapid rise in its non-development or current revenue expenditure.

The current expenditure for the next fiscal has spiked by almost a quarter of the original estimates for the ongoing year to Rs168.5bn.

This has been on account of a big increase in tube-well subsidies (Rs8bn); 7.5pc raise in the pay and pensions of government employees allowed by the federal government (Rs6bn); spike in the pay of the police and levies forces (Rs4bn); expenditure on devolved functions (Rs2.7bn); rise in allocations for law and order (Rs6bn); and the purchase of helicopters (Rs2bn) for rescue operations during times of disasters and emergencies.

In contrast, development spending has been raised by just 6.4pc to Rs51bn (excluding foreign project assistance). The chances of reduction in its size cannot be ruled out if the province fails to narrow down the deficit to create space for the promised investment spending.

It has already slashed its development outlay for the present year by a hefty 13.5pc from Rs48bn (excluding foreign projects assistance) to Rs41.5bn.

The growing resource crunch has serious implications for the development of social and economic infrastructure in the province. The throw-forward of the development schemes has already reached Rs125bn and is estimated to rise to Rs141bn by the end of the next year.

The growth in throw-forward of development schemes is a bad news for the people. It means that those who require a road or college or hospital or drinking water today will have to wait for several years for the completion of these projects.

Balochistan’s budget for 2015-16 shows that all the new schemes that the government plans to initiate in the next fiscal year will require seven years to be completed if the allocations for the new and ongoing projects are made at the current ratio of 60:40 and if the entire funds are actually utilised without cutting their size on account of the resource crunch.

Published in Dawn, Economic & Business, June 22nd, 2015

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