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Lag in Punjab’s development spending

Updated April 24, 2017


The likely loss in Punjab’s estimated general receipts, for the ongoing fiscal year, owing to an expected shortfall in federal transfers and a lower-than-targeted provincial tax and non-tax revenue collection, points a significant cut in its planned development spending for the year.

Punjab, according to officials making the budget for 2017/2018, expects its estimated share of Rs1.04tr from federal transfers (under the National Finance Commission (NFC) award) during the present fiscal year to decrease by almost a tenth, to Rs939bn, because of the projected shortfall of over Rs300bn in the Federal Board of Revenue’s targeted tax collection.

Additionally, the province is also struggling to meet its own provincial tax and non-tax collection targets of Rs184.43bn and Rs95.6bn. The civil account for the first eight months of the present year to February show that the overall provincial tax and non-tax revenue collection of Rs149.73bn fell short of the (pro rata) target of Rs186.70bn by almost a fifth.

The government’s civil accounts, however, show that it has utilised less than a third of the amount, or just Rs180bn, in the first eight months of the fiscal year

In the first eight months, the province managed to rake up only 55pc — Rs101.89bn — of tax and almost half — Rs47.83bn — of the non-tax revenue targets.

Accounts show the provincial authorities are facing significant deficit in provincial sales tax on services and property tax collection. The government expects 35pc to 40pc growth in its provincial tax revenues over the last year.

“We are looking at a shortfall of between 7pc and 11pc in the total estimated provincial revenue receipts of Rs1.32tr by the close of this financial year,” an official told Dawn. “The impact of this revenue loss will primarily reflect in the development spending cut at the end of the year.”

The Shahbaz Sharif government had announced development spending of Rs550bn, including the core annual development programme of Rs471.48bn, for the current year.

The estimated development investment for the current financial year is 37.5pc greater than the original estimates of Rs400bn, including core development spending of Rs333bn, for 2015/2016, that the Punjab government planned to finance through revenue surplus of Rs435bn, foreign project assistance and a Chinese loan of Rs85bn for the controversial, $1.65bn Lahore Metro Orange Line Train Project.

The government’s civil accounts however show that it has utilised less than a third of the amount or just Rs180bn in the first eight months of the fiscal year. But the officials said the actual utilisation of the development funds will exceed 80pc by the end of the year.

The government’s development spending was estimated at the time of presentation of the budget for the present year to create half a million jobs in the province through investment in large infrastructure projects in the transport, energy, irrigation, agriculture and other sectors.

The budget for the next fiscal year, officials said, will aim to achieve the goals the government has set for itself in its three-year Punjab Growth Strategy 2015/2018, which targets to stimulate economic growth in the province to 7pc to 8pc by the end of the next financial year, attract private investment through construction of infrastructure, alleviate poverty and improve security conditions.

Ever since she took charge of the provincial finances, Ayesha Ghaus-Pasha has implemented a slew of reforms to make the budget-making process a participatory effort by involving public representatives, business community and academia, increase development fund utilisation, improve social service delivery, raise tax revenue, encourage accountability of those responsible for implementation of the government policies, etc.

Spelling out her priorities at a meeting with economic reporters in Lahore last week, provincial finance minister Ayesha Ghaus-Pasha had said she intended to carry on the tax and expenditure reforms and implement outcome based budgeting, as well as continue to increase the development budget for the social sector and infrastructure, in the next budget for the year 2017/2018, to create jobs.

“The next budget will also be people-friendly and the social sector — health, education, etc — will continue to get top priority in resource allocations,” she said. “We have been raising allocations for education and health for the past few years and the trend will continue to hold. Besides, the provincial spending on construction of transport, energy, agriculture, and irrigation infrastructure will also continue to receive higher allocations for job creation in the province.”

Published in Dawn, Business & Finance weekly, April 24th, 2017