KARACHI, Dec 20: The share of the provinces in the overall national revenues is expected to go up as a result of fiscal devolution and poverty reduction programme.

Official sources said here on Thursday that provincial spending (capital and current expenditure) is targeted to increase from 5.1 to 5.7 per cent of the GDP in the three-year period, covered by the PRGF programme.

In the medium-term, the broadly-defined social and poverty-related expenditure is intended to be raised by 0.6 percentage points of the GDP.

Sources indicate that the National Finance Commission would complete its review of future resource allocation and revenue sharing formula between the federation and the provinces before the next year’s budget.

The increase in allocation for the provinces would be made possible by the fiscal space created by the significant budgetary and current account support extended by donors and international coalition partners. At the same time, the government would reduce the share of other categories of spending, including defence-related expenditure.

In the I-Poverty Reduction Strategy Paper,(I-PRSP) the government is committed to making the provinces and the newly-elected governments responsible for most of the programmes for poverty reduction. And over the medium term, the government plans to allocate a rapidly growing share of budgetary expenditure to growth enhancing and poverty reduction outlays.

The I-PRSP spending has been raised from Rs119 billion in fiscal 2000-2001 to Rs136.4 billion in 2001-2002. The Public Sector Development Programme (PSDP) has been increased by nearly 40 per cent to Rs140 billion when compared to provisional figure of the last fiscal. The target is to raise the development budget by 1.2 percentage points of the GDP over the three-year period, to enhance growth and reduce poverty.

In I-PRSP, the devolution initiative would play a key role as it empowers local communities to formulate and implement development strategies that correspond to local needs.

Starting from next financial year, the district governments would prepare their own budgets, based on transfers from the provincial governments and their own resources.

Sources here stressed that the district governments would be permanently subjected to a “balanced budget” constraint that does not allow them to borrow from scheduled banks or the State Bank. In the medium-term, the hiring of staff would also not be devolved to the local governments.

It would, however, be ensured that the local governments fully share the objectives and strategy and agree to the amounts of resources needed to achieve the targets falling under their responsibility and have the necessary institutional mechanism to monitor expenditure and the progress towards the objectives.

The World Bank is currently helping develop provincial reform strategies in context of improved resource management and pending devolution of many public services to local governments and communities.

IMF officials foresee a strong need to strengthen training for local government personnel and strict accounting procedures to avoid a loss of financial discipline and hijacking of local budgets by local elites. They say the track record from the past experience is rather mixed in respect of governance and fiscal management. Besides, the devolution has brought untested new players into the picture, the impact of which, they contend, is difficult to foretell.