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Lag in development spending

Updated May 25, 2015


Chief Minister Shahbaz Sharif speaking at the launching of the ‘Punjab Growth Strategy 2018’ in Lahore on May 16.
Chief Minister Shahbaz Sharif speaking at the launching of the ‘Punjab Growth Strategy 2018’ in Lahore on May 16.

Punjab's failure to use more than half of its development budget during this fiscal year will cost its economy dearly and increase the social and economic infrastructure gaps in the province.

Punjab has spent Rs167bn in the first 10 months of this fiscal, or just a little over 48pc of the Rs345bn it had allocated for the annual development programme (ADP) in the 2014-15 budget, say officials.

And while the provincial authorities expect the public development investment to rise to Rs225bn, or over 65pc of the budgetary allocation, by the close of the fiscal on June 30, many remain sceptic.

Data shows that the Shahbaz Sharif government’s actual spending on development has remained far below the ‘exaggerated allocations’ for the ADP in successive budgets.

During the last financial year, for example, the government had allocated Rs290bn for development. The size of the ADP was later revised down to Rs224bn, while Rs162bn (or 56pc of the original target) was utilised in the first 11 months to May.

Most of the time, the amount of development funds utilised is less than the resources made available by the finance department

In 2012-13, the original development allocation of Rs250bn was slashed to Rs167bn. Actual spending stood at Rs137bn in the first 11 months of the year.

Officials admit that Punjab’s actual development spending has lagged far behind the rising non-development expenditures over the last five years, despite the doubling of its revenues during the period owing to its increased share from the federal divisible pool under the 7th National Finance Commission (NFC) Award.

The province’s funding for development, including foreign loans and grants, rose by just Rs90bn to Rs224bn if the revised estimates of the allocations for development in 2010-11 and 2013-14 are compared. This is against the quantum jump of Rs266bn in current expenditures to Rs584.67bn during the same period.

“The trend has lingered during the present fiscal [despite the anticipated growth of 144pc in the province’s revenues to Rs1.033trn over the life of the NFC award] and is likely to continue during the next financial year,” a finance department official told Dawn.

The provincial government plans to set aside Rs400bn for development projects in the next financial year. The amount to be budgeted for development is 11pc lower than envisioned in the medium-term development framework for the next fiscal. Officials said the next year’s development programme will be financed primarily through revenue surpluses and foreign project assistance, as was the case in the past.

Major initiatives to be undertaken will include an LNG-based power plant in Sheikhupura, small coal power plants (near Lahore, Kasur, Faisalabad and Multan), the Lahore Orange Line Metro Train, the Lahore Knowledge Park, kidney and liver transplant and cancer hospitals in Lahore, mobile healthcare service, and the construction of the southern loop of the Lahore Ring Road.

The official said the province’s development budget was prepared and the allocations were blown up without considering the availability of resources.

“The finance department, for instance, had indicated a ‘cash cover’ of Rs240bn for development programmes for the present year based on its anticipated income. Still, the size of the development plan was pitched 30pc higher than the resources committed by the finance department,” he said.

The planning and development department officials conceded that the allocations for development projected in the provincial budgets are usually ‘exaggerated’. But they blamed the federal government’s inability to collect taxes and transfer the promised resources to the province, which resulted in downward revisions of the original development spending estimates.

“The budgetary allocations for development are nothing more than projections based on estimates of income. If the income falls short of the estimates, the development projects are also cut down accordingly,” a planning department official argued.

He also acknowledged that most of the time, the amount of development funds utilised is less than the resources made available by the finance department because of delays in planning and execution of the projects and a shortage of capacity to implement large projects etc.

Conversations with planning department officials show that next year’s development programme is being prepared with a view to support the objectives of the recently launched Punjab Growth Strategy 2018.

The strategy aims to stimulate growth in the province to 8pc over the next three years; create 1m new jobs each year; and pull out 7m people from below the poverty line before the next elections.

Nevertheless, many officials remain doubtful about the government’s ability to achieve the targets set in the growth strategy.

“The growth strategy is old wine in a new bottle. The objectives enunciated in the strategy are as unrealistic and exaggerated as the provincial annual development plans. Unless the government makes the right choices and invests in infrastructure to unlock the growth potential in agriculture and manufacturing, the growth strategy will not get Punjab anywhere,” argued a senior official who has worked both in the provincial finance and planning departments.

Published in Dawn, Economic & Business, May 25th, 2015

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