Since its inception as province in 1970, Balochistan has been drawing 95 pc of its revenues from federal receipts and the rest from its own resources. About 50 per cent of the federal receipts of Balochistan come from the divisible pool and 40 per cent from straight transfers.

The straight transfer, introduced in 1990 under the NFC Award, comes to Balochistan in the shape of excise duty, royalty and development surcharge on gas. Initially, Balochistan received Rs4 billion in 1991-92 under this head, which rose to around Rs5bn in 1992-93, but, in subsequent years, it started declining, and dropped to a little over Rs3bn in 1996-1997. In 1997-98, it declined to around Rs2bn.

There were two fundamental reasons for the decline: below projection receipts under NFC Awards right from 1990 to 1997 and exclusion of development budget from the NFC scope.

The Balochistan government’s first budget for 1997-98, under the NFC Award, showed substantial revenue receipts for six months. After six months, the revenue receipts were reduced to such a level that it was sufficient only to pay salaries. Moreover, the revenue surplus in the first year also became negative. The reason was that on 1st July 97, the effective date of the NFC Award 97, Balochistan had an outstanding debt of Rs2165.95 million against the borrowing limit of Rs207m from the State Bank of Pakistan.

Thus the Balochistan government had to resort to overdraft from the SBP at 16 per cent mark-up. As such, in 1996-97, Balochistan paid Rs286.9 million as mark-up, which put an unnecessary drain on poor financial resources. There were two factors for the overdraft: delay in the transfer of funds from Islamabad and persisting shortfall in federal receipts.

According to NFC Award 1997, Balochistan was to receive from the centre to the tune of Rs16.9 billion. But it was reduced to Rs14.8bn in 1997-98 budget, a shortfall of Rs2.1bn.

Moreover, the debt inherited by Balochistan on February 23, 1997, was Rs 2.4 bn. The NFC Award came into operation on 1st July 97. Balochistan’s debt on that day was Rs2.1bn, which increased to Rs2.5bn on Dec 21st, 1997. Had the federal government paid according to the NFC projections, Balochistan would not have faced debt problem. Even disbursement on the basis of budgetary allocation for FY 97-98, would have eased the situation to a great extent.

In 1998-99, the federal government adopted a new methodology for the disbursement of the receipts to provinces: federal receipts disbursed on the basis of actual collections reported by the CBR.This system did not only delay the transfer of money to the provinces, but also caused shortfalls. Such shortfalls forced the provinces to cross the overdraft limit from SBP, hence huge mark-up payment. This led to escalation in the deficit of Balochistan from the beginning of the financial year till the take-over by Gen Pervez Musharraf on Oct 12, 1999. Financial position of the provinces improved after that. Out of Rs616 bn released to the provinces under NFC, from 1999 to Feb. 2003, Punjab received Rs295.9bn, Sindh Rs169.2bn, NWFP Rs78.4bn and Balochistan Rs72.4bn.

The Balochistan budget 2000-2001 showed some stability. The province not only stopped borrowing from SBP,but it crossed the revenue target of Rs782.221m as well, which stood at Rs974.502m. Balochistan thus qualified for a matching grant from the federal goverment as enunciated in the 5th NFC Award.

Balochistan’s borrowing from SBP had touched a mark of Rs2,600 million in 1997-98. But after that, the SBP borrowing was converted into a blocked account, being repaid at the rate of Rs600m, which is expected to be fully repaid by July 2003. In a short span of 9 months (Oct 99 to June 2000), the cash deficit was converted into surplus. This was due to financial discipline, economic measures, effective check on leakages and wasteful expenditure.

Federal transfer from 1997-98 to 2002-2003 from Islamabad to Quetta, has grown at 10.96 per cent per annum. Besides federal transfer, Balochistan’s own revenue receipts have grown at 41.76 per cent per annum, compared with per annum growth of 5.48 per cent.

There is, however, a significant deficit of Rs3bn in the current budget with no or little hope for any financial relief for the people during 2003-2004. This has been attributed to Rs15bn shortfall in Balochistan’s share from the NFC Award. This shortfall has to be met by federal subvention/grant during FY 2003-04, otherwise the Jam Yusuf coalition government would find it difficult either to finance development budget of Rs13bn or pay salaries without resorting to SBP.