WITH a view to correcting the ‘existing mismatch and imbalance’ between provincial income and spending, the PTI government in Punjab plans to significantly cut development investment in its first year in power. It aims to reset priority spending, and fix ‘unrealistic and exaggerated’ budget expenditure estimates (of the previous Shahbaz Sharif administration).

Punjab Finance Minister, Makhdum Hashim Jawan Bakht says the new PTI administration is forced to significantly reduce the development stimulus in its first budget to be presented later this month because of the irresponsible and extravagant policies of the Shahbaz Sharif government during the last 10 years.

“When the (second) term of the previous government expired (in May this year), Punjab didn’t have cash to pay contractors their bills of Rs57 billion and had almost completely exhausted its credit line of Rs37bn with the State Bank of Pakistan (SBP),” he contended.

‘Our first budget will be a ‘corrective budget’ and our development model will follow an outcome-oriented instead of the input-oriented model followed by the last government, but we will not abandon projects where the government has already made investment’

“We have inherited a precarious financial condition because of reckless spending by the previous government for gaining political mileage on projects like Lahore metro train. These projects will only squeeze fiscal space for future development in Punjab without producing economic dividends commensurate with the cost incurred on them. The present situation demands that we reset our development and current expenditure goals, increase income and prioritise spending.”

Provincial finance department officials confirm that they had to face great difficulty in managing the cash flow during the last year of the PML-N government in the province. “On the one hand, the estimated provincial income substantially shrank owing to a shortfall in federal transfers on the back of lower-than-targeted federal tax collection and a revision in provincial tax revenue target due to court order on a levy on mobile phone usage.

“On the other hand, Punjab was forced to finance expensive politically motivated road and energy schemes that were never part of its budget because the PML-N governments (in the centre and province) wanted to execute them in view of the July elections.

“On top of that the federal government withheld Rs124bn from Punjab’s share under the National Finance Commission (NFC) award to reduce its fiscal deficit for the last fiscal year,” a provincial official having access to information told Dawn.

The Punjab government was sued by the affected companies for the recovery of their dues and pace of work on a number of infrastructure and other projects underway slowed.

Consequently, Punjab was forced to carry forward accrued liabilities close to Rs100bn into the present financial year. The situation has eased since because of the transfer of the withheld cash from the federal government in August and most of the outstanding bills paid, officials say.

Mr Bakht, a former Citibanker, blames reckless expenditure by the PML-N administration on popular glamorous schemes like metro train in Lahore and LNG-based projects which, without achieving financial closure, had led provincial debt stock to rise by 24pc to Rs693bn last year.

“Because of its focus on projects that the previous government thought would buy it votes in the election, it totally ignored management of current liabilities like pension of the province,” he said, adding the provincial pay and pension bill had spiked to Rs542bn in the last financial year following the last increase announced to get political millage without keeping the weakened financial position of the province in mind.

He said the government-sponsored energy projects like solar power plant in Bahawalpur were facing working capital issues and the province was likely to pay subsidy of Rs8bn annually once the metro train project is completed. The cost of the project has already increased by Rs17bn from original estimates to Rs179bn.

The finance minister added that the PTI government will revisit development planning to align it with its growth strategy and human development goals. “We are going to implement comprehensive reforms to broaden and increase our provincial tax and non-tax revenues and give realistic estimates of income spending.

“Our first budget will be a ‘corrective budget’ and our development model will follow an outcome-oriented instead of the input-oriented model followed by the last government, but we will not abandon projects where the government has already made investment.

“Moreover, we plan to devolve more power to the grassroots level under the new local government system that we intend to bring in the province to empower people. That plan will be reflected in our policies and budget choices.”

Published in Dawn, The Business and Finance Weekly, October 1st, 2018