Worrying cash surplus

February 22, 2016


THE Shahbaz Sharif government will try to persuade the centre to cut down the cash surplus target for Punjab for the current fiscal year to allow the province spike public investment on large energy and infrastructure projects.

Punjab’s finance minister Dr Ayesha Ghaus Pasha confirmed to Dawn last week that the province planned to soon initiate a dialogue with the centre for downward revision of the cash surplus target.

The federal government requires Punjab to yield a surplus of Rs160b, just a little over half percentage point of GDP at the end of the year.

Punjab’s cash surplus target is 53pc of the total balance of Rs297bn - almost 1pc the size of the economy - that Islamabad wants the provinces to generate to cut down the country’s consolidated budget deficit to 4.3pc this year under the three-year $6.7bn loan arrangement with IMF.

Dr Ayesha refused to discuss how much reduction in surplus target she plans to negotiate with the centre.

“We will try to generate as much balance at the end of the year as possible without compromising on our growth targets. We don’t want to jeopardise the centre’s arrangement with the IMF, but, at the same time, we have our own growth framework and priorities.”

The finance ministry’s report on federal and provincial fiscal operations during the first half of the year to December shows that the provinces had generated cash surplus of Rs155bn during the period to help keep the consolidated fiscal balance at 1.7pc of GDP, well below the target of 2.1pc agreed with the IMF for the period.

Sindh led the other provinces with a surplus of Rs77.39bn or 36pc of its total expenditure during the first six months.

“We don’t want to jeopardise the centre’s arrangement with the IMF, but, at the same time, we have our own growth framework and priorities” — Dr Ayesha Ghaus Pasha

Balochistan’s balance stood at Rs18.4bn or 24pc of its total expenditure while Khyber Pakhtunkhwa contributed a surplus of Rs16.4bn or 11pc of its total spending.

Punjab threw up the smallest of surpluses as a percent of total expenditure, showing balance of Rs43bn or 9.5pc of its current and development spending during the period.

The provinces are assigned cash surplus targets according to the ratio funds from the divisible tax pool distributed between them under the National Finance Commission (NFC) award.

They threw up a large surplus of Rs283bn in 2013/2014 - the year Islamabad signed the loan deal with the Fund - against the budgeted target of Rs23b. The next year the federating units generated a balance of Rs3.50bn against a target of Rs289.29b.

Opinion is divided over the federal demand for provincial surplus to fill the gaping hole in its budget under the deal with the IMF.

Critics argue that the federal government was squeezing the resources available to the federating units at the expense of their development and public service delivery.

Ever since the inception of the current financial year however, the Punjab government has been pursuing an expansionary fiscal policy and investing heavily in large energy, transport and other infrastructure projects.

“We realise that the IMF programme has helped bring about macroeconomic stability in the country and improve fundamentals. But at the same time we’ve our own compulsions to encourage private investment to grow the provincial economy by 7-8pc a year and produce 1m jobs in the province every year for new entrants to the labour market,” the minister explained the rationale behind Punjab’s expansionary fiscal policy.

Though the province has slightly revised down its original development spending target of Rs400bn (including foreign assistance component of Rs30.87bn and non-core development allocation of Rs67b) to Rs396bn for the ongoing fiscal, the finance department has already released 42pc or Rs167bn of the total amount in the first seven months of the financial year to January.

Punjab’s overall expenditure grew almost by a third to Rs453.77bn during the first half of the fiscal from a year earlier, with development spending expanding by 84pc to Rs141.39b.

It had spent a total of Rs210bn on development during the last fiscal year.

Dr Ayesha, who is credited for implementing significant tax reforms and increasing provincial tax collection by a third to over Rs60bn in the first half of this fiscal from a year ago, said the provincial government is forced to boost public investment in energy and infrastructure projects because energy shortage is impeding private investment in the province.

“The province deserves credit for significantly spiking development expenditure with the aim of achieving inclusive growth under a well-knit investment-based growth strategy.

“Our development choices will ultimately boost economy, remove infrastructural impediments to private investment and create jobs, bearing direct impact on the quality of life of common man.”

Published in Dawn, Business & Finance weekly, February 22nd, 2016