WITH Punjab’s development throw-forward surging to nearly Rs850 billion, the Usman Buzdar government in the province is finding it tough to find sufficient financial resources for its annual investment stimulus for the present year.

A federal condition to show a hefty cash surplus of Rs147.7bn at the end of the fiscal to keep consolidated fiscal deficit at 5.1 per cent is responsible for the issue.

The province, according to officials involved in the preparation of the first budget of the PTI administration in Punjab to be presented on Tuesday, is negotiating with the federal government to waive this condition so that it may manage its development spending at around Rs340bn.

“In case the federal government insists we have to show a surplus in the budget, the size of the Annual Development Programme (ADP) will have to be cut down further to Rs255-300bn depending on the amount of cash surplus we will be required to show in our budget,” a senior official told this correspondent requesting anonymity because he is not authorised to give public statements.

The new PTI government has already decided to slash the development stimulus size this fiscal from original estimates of Rs635bn for last year. The development expenditure for the last financial year has already been revised down to Rs489bn, according to the provincial civil accounts.

‘In case the federal government insists we have to show a surplus in the budget, the size of the annual development programme in Punjab will have to be cut down further’

“The previous government was in the habit of unnecessarily inflating its development budget for political reasons. But the Buzdar administration is trying to give realistic estimates of its development spending,” the official said.

Punjab Finance Minister Makhdoom Hashim Jawan Bakht has already said that the government planned to significantly cut development investment in its first year in power to correct the ‘existing mismatch and imbalance’ between provincial income and expenditure’, as well as reset priority spending to fix unrealistic and exaggerated budget expenditure estimates (of the previous Shahbaz Sharif administration).

The officials insist that the federal government cannot constitutionally ask provinces to produce a cash surplus. Both Sindh and Balochistan, where the PTI is in opposition or part of a coalition with other parties, have announced deficit budgets for this year in complete disregard for the federal requirement.

They say the province has already identified current expenditure of around Rs50-55bn that could be slashed this year to save money for meeting the federal cash surplus requirement.

“Current expenditure is always sticky and inelastic. It is difficult to reduce it in a big way. Therefore, we will be left with no choice but to decrease the size of the provincial development programme.”

Officials say even the proposed size of the provincial development spend of Rs340bn will not be enough to complete ongoing projects like Lahore Orange Metro Train, let alone start new schemes.

“Discussions have primarily focused on making allocations for ongoing projects and complete them to stop further surge in throw-forward of incomplete schemes. Hence, we are making a corrective budget this year,” another official said, again refusing to give his name. “It is going to be a tough balancing act in view of resource constraints.”

The minister had told journalists recently that the PTI administration is forced to significantly reduce the development stimulus in its first budget because of the irresponsible and extravagant policies of the previous governments during the last 10 years. He had described the province’s financial condition as precarious because of reckless spending by the previous government.

“Projects like the metro train will only squeeze fiscal space for future development without producing economic dividends commensurate with their cost. The present situation demands that we reset our development and current expenditure goals, increase income and prioritise spending.”

In order to make up for the resource shortage, the Buzdar government has decided to involve the private sector in the development of economic infrastructure in the province.

“The provincial government realises that it cannot meet the cost of infrastructure on its own. Therefore, it has decided to make policy interventions to woo private capital in schemes like road construction on build-operate-transfer basis.

“Unless we move in this direction and strengthen public-private partnership, we will not be able to bridge the huge infrastructure gap. The government should invest only in schemes that are necessary but not attractive for private businesspersons,” the first official argued.

Published in Dawn, The Business and Finance Weekly, October 15th, 2018