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Development spending in a troubled province

May 16, 2016


A girl feeding her egg-laying chickens provided by UNDP in Balochistan to boost livelihoods and reduce poverty.—UNDP file photo
A girl feeding her egg-laying chickens provided by UNDP in Balochistan to boost livelihoods and reduce poverty.—UNDP file photo

Balochistan has spent just two-fifths of funds budgeted for its development spending in the first 10 months of the ongoing financial year to April.

Certain reforms implemented over past several months to ‘control the waste and leakage of funds’, and capacity gaps in the provincial planning and development department to timely draw up and carry out the schemes are said to be major factors responsible for slower pace of development this year.

Senior provincial finance officials told Dawn last week that the provincial departments had been restrained from making advance payments to the contractors hired to implement a project to show higher development spending rate.

“We (the finance department) have released over 90pc development funds (on pro rata basis) but restrained the executing agencies from making advance payments to the contractors to show higher-than-actual utilisation rate as was the common practice,” a senior official who agreed to speak on condition of anonymity told this writer.

The formation of the Balochistan Revenue Authority has helped increase the revenues generated from provincial sales tax on services by 50pc from around Rs1bn to Rs1.5bn in the last four months after the authority became functional

The provincial departments, he said, had also been instructed to surrender the unspent funds to the government instead of keeping them with the banks.

The size of the provincial development budget for the ongoing fiscal year was marginally raised to Rs54.5bn, including the foreign project assistance of Rs3.4bn, from a year ago. The total development allocation is 22.4pc of the total provincial budgetary outlay and a quarter of its entire income.

Last year, the province slashed its development outlay by 13.5pc from Rs48bn (excluding foreign projects assistance) to Rs41.5bn.

No senior provincial planning and development department official was available to confirm or deny the claim of the finance department about the pace of utilisation of development money or implementation of payment reforms.

One official, however, privately admitted that the pace of development had remained slower than the past years. He said he could provide the exact details of the development funds released and actually utilised so far only after a few days. In the same breath, he blamed the private sector’s limited capacity to speedily execute projects for lower utilisation rate.

Talking to this reporter a day before the National Accountability Bureau (NAB) arrested the finance secretary Mushtaq Raisani for massive embezzlement of local government funds, Mir Khalid Khan Langua, former provincial finance adviser, expressed satisfaction over the pace of development in the province.

He attributed the slower pace of execution development schemes to delays in the finalisation of the projects. “The flaws in our planning system are responsible for the delays in formulation and implementation of development schemes and lower utilisation of funds.”

Nevertheless, the former adviser contended that the development gaps created by the underperformance of the provincial government has largely been covered by the higher federal spending in Balochistan.

“For the last three years, the federal government has been very cooperative with the province. We are getting almost 85-90pc of our share from the federal PSDP. If a certain project is not finalised, the money meant for it is diverted to some other scheme in the province,” he added.

Tax reforms: Officials admitted that the Balochistan government had failed to develop its own tax base to decrease dependence on the federal transfers as promised in the budget. “We haven’t started the process to hire a consultant to develop local taxes to make districts financially independent and reduce burden on provincial finances. But we have set up Balochistan Revenue Authority (BRA) to collect provincial GST (general sales tax) on services,” the finance department official argued.

He said the formation of the BRA had helped increase the revenues generated from provincial sales tax on services by 50pc from around Rs1bn to Rs1.5bn in the last four months after the authority became functional. “We intend to raise collection under this tax to Rs4-5bn in a few years,” the official said.

Balochistan expects to get 72pc (Rs156bn) of its total income from the federal divisible pool, 6.7pc (Rs14.72bn) in straight transfers, and raise 3.6pc (Rs7.85bn) from its own tax and non-tax resources this year.

This shows the province’s heavy dependence on federal transfers because of its underdeveloped agriculture, industry and services sectors. The poor security condition has further eroded the base of provincial taxes and added an additional burden on its meagre finances.

The provincial budget for the ongoing year carried a deficit of Rs26bn or 12pc of the total consolidated income of Rs217bn and over 10.7pc of the consolidated budgetary outlay of Rs243bn for the year.

The government was hopeful that a significant increase of Rs3bn in the provincial tax from Rs5bn to Rs8bn, and additional income of about Rs15-29bn after finalisation of new agreement with the PPL on wellhead price of gas will help it cut down the deficit. But now it seems the low level of development spending will be used to cover this fiscal gap as tax reforms are slow and the agreement with the PPL yet to be reached.

The budget documents show that the province’s development financing gap has been rising in spite of a hefty increase in its share from the federal divisible pool under the 7th NFC Award, mainly because of the rapid rise in its current expenditure, which spiked by almost a quarter of the original estimates for the last year to Rs168.5bn. In contrast, development spending was raised by just 6.4pc to Rs51bn (excluding foreign project assistance).

Published in Dawn, Business & Finance weekly, May 16th, 2016