THE federal and provincial governments have sent conflicting messages while announcing their 2016-17 budgets this month, leaving room for maneuvering all along the fiscal year.

To begin with, Finance Minister Ishaq Dar announced in his budget speech a Rs46bn subsidy for fertilisers to be equally shared by the central and provincial governments and provided Rs23bn in the federal budget.

The budget documents he released, however, showed that even the Rs10bn subsidy earmarked for the outgoing fiscal year — Rs5bn for fertilisers and Rs5bn for National Food Security division — had been discontinued for next fiscal year.

Therefore, the temptation of cross-subsidising natural gas rates cannot be ruled out when a higher average gas tariff is announced in July 2016 despite the drastic drop in international oil prices with which domestic gas producer prices are indexed.

The federal government has set its fiscal deficit limit of Rs1.276tn, or 3.8pc of GDP on the basis of Rs339bn cash surplus to come from four federating units during the upcoming fiscal year

When asked, the finance minister said it was not necessary to show everything in budget books, that there is significant room, going to the extent of Rs100bn, in the budget to provide funds.

No wonder then, there are mini-budgets almost on a quarterly basis to meet international commitments on revenue and fiscal deficit and regular decisions of the Economic Coordination Committee of the cabinet bearing budgetary impacts, throughout the year.

During the current year, for example, over Rs100bn budgetary decisions were taken in one quarter and Rs40bn in another.

Secondly, the finance minister also announced a Rs27bn subsidy on electricity for agricultural tubewells. The budget documents, however, suggest that even the Rs10.6bn subsidy for Balochistan’s tubewells has been slashed to Rs9bn with no other fresh subsidy allocation for tubewells for the rest of the country. The overall power sector subsidy has been reduced to Rs118bn for next year from Rs171.2bn this year, down 31pc.

For the first time, the federal government has removed expected recovery of $800m from Etisalat on account of PTCL privatisation proceeds, which raises suspicions that the government has lost hopes of recovery or has reached some other understanding with the foreign investor that has not been announced.

A presidential order has changed the applicability of the old NFC ‘till further orders’, leaving no urgency to meet the constitutional requirement for a fresh NFC award every five years

The federal government has set its fiscal deficit limit of Rs1.276tn, or 3.8pc of GDP on the basis of Rs339bn cash surplus to come from four federating units during the upcoming fiscal year.

At the outset, however, the provinces have adopted a different approach. They have announced their budgets with Rs51bn deficit, meaning that instead of contributing to lower consolidated national deficit, they would add to the gap.

Also, the federal government has put cumulative provincial development plans at Rs875bn for next year on the basis of budget ceilings exchanged at the meeting of National Economic Council (NEC), chaired though video-link by the prime minister. The NEC, thus approved the Federal Public Sector Development Programme (PSDP) at Rs800bn and provincial ADPs at Rs875bn.

This was based on Punjab’s commitment to have a development plan of Rs460bn for next year, followed by Rs211bn of Sindh, Rs143bn of Khyber Pakhtunkhwa and Rs61bn of Balo­chistan. All these numbers were an­nounced after the NEC by Minister for Planning and Development Ahsan Iqbal.

However, the four provinces exceeded their development programme by a wide margin. Punjab was the first to have a Rs550bn development plan, about 20pc higher than its understanding with the centre. Sindh went a step ahead with almost a 24pc higher ADP of Rs260bn instead of Rs211bn.

Khyber Pakhtunkhwa followed with a 13pc higher ADP of Rs161bn against its NEC-ceiling of Rs143bn. Balochistan exceeded its commitment of Rs61bn ADP with over 16pc higher allocation of Rs171bn for development.

The implementation of all these plans would depend on the funds to be delivered by the federal government under the National Finance Commission arrangement, leaving a lever in the hands of the centre that transfers quarterly shares to the provinces on the basis of federal revenue collections.

No wonder then, the provincial governments, particularly Sindh and KP, keep criticising the federation for their financial woes. The centre, however, expects to transfer slightly higher amounts to the provinces than anticipatory shares conveyed to the provinces in June last year.

The total provincial share in federal taxes was estimated at Rs1.849tn in June 2015 but is now revised to Rs1.852tn.

Interestingly, the federal budget documents keep changing goal posts on the next NFC award. After the first meeting of the NFC, it was officially announced by the parties that the 7th NFC award would remain in place for one year or before finalisation of the next award, whichever is earlier.

However, a subsequent presidential order changed the applicability of the old NFC ‘till further orders’, leaving no urgency to meet the constitutional requirement for a fresh NFC award every five years.

In June last year, the finance ministry said the first meeting of the 9th NFC held on April 28, 2015 decided to constitute four working groups to undertake thematic studies and put forth their recommendations for consideration by the commission. The present award will remain operative till 9th NFC award is implemented.

This year, the finance ministry has made another departure by saying that it could convene the next NFC meeting only after those committees ‘complete their studies and submit their recommendations’. Ironically, the constitutional requirements regarding holding of NFC meetings also remain unfulfilled. It appears that all parties to the NFC stand satisfied with current revenue shares and don’t want to change the status quo.

Published in Dawn, Business & Finance weekly, June 27th, 2016