ISLAMABAD: Reviewing the performance of Balochistan’s public finance management, an assessment report released by the World Bank says the provincial government has been preparing an unrealistic deficit budget since 2013-14, which it cannot finance because it is not allowed to borrow in the absence of a debt strategy.

Over the years, the government has been able to curtail annual expenditures within available resources, yet significant shortcomings exist resulting in low budget reliability, according to the report, titled “Balochistan: Public Expen­diture and Financial Account­ability (PEFA) Performance Assessment report”.

The province has 44 per cent of the country’s total land mass and only five per cent of the total population. Improved management of public finances is the key element to development and the public expenditure also contributes to the province’s economy.

The Balochistan government is interested in improving the management of public finances for fiscal discipline and public service delivery, and has asked the donors, led by the World Bank, to conduct the public finance management assessment to provide a snapshot of the public financial management (PFM) performance and provide a credible baseline for preparation of the government’s PFM reform strategy.

World Bank says the provincial government over the years has been preparing an unrealistic budget

Based on the results of the assessment, the provincial government has prepared the 10-year reform strategy for robust and sustainable PFM systems and effective and efficient use of public resources and service delivery. Progress has been made to improve budget preparation process for the fiscal year 2016-17 by developing a budget strategy paper and communicating indicative ceiling to the largest spending departments.

The assessment report points out that the provincial government has no approved strategic development plan to prioritise resource allocation and measure development bearing. Under the current state of affairs, development schemes are budgeted without proper costing, appraisal, and approval. There are no established criteria for project selection and guidelines for project identification and appraisal are also not followed. Information systems within the line departments are either weak or nonexistent and result in duplication of public investments in one area and no investments in other areas where they are needed.

On the current side, employee-related expenses consume about 75 per cent of the budget limiting fiscal space for operation and maintenance expenditure. The public perception that increasing the current budget represents higher administrative cost is a deterrent to allocate required resources to the current budget. This results in a scenario where assets are acquired and used, but not maintained. Limited participation of spending units results in allocation for low priority expenditure heads or inadequate allocation for expenditure heads where most of the funds are required.

Linkages are also weak between the current and development budget processes. There has been a significant deviation from the budget in the composition of expenditures because of extensive executive powers of in-year budget adjustments. Therefore, strategic priorities determined through the budget process do not remain in place. There is no monitoring and reporting on the financial performance of operations and entities outside budget.

Issues in public debt management, public assets management, and fiscal risk reporting also contribute to weak aggregate fiscal discipline. No mechanism or practice exists to monitor financial performance and fiscal risk arising from public corporations and local governments; a complete list of government-owned public corporations is not available.

In addition to delayed communication of budget release information to service delivery units, the practice of releasing the procurement budget in second semester is a constraint. More­over, the spending units are not allowed to start the procurement process without budget release and are left with insufficient time to complete procurements after budget release.

For development budget, absence of budget release policy and project-based releases limits the predictability of funds availability to service delivery units. At the government level, as no cash forecasts are prepared, the practice adopted to manage cash balance is to release majority of the budget in last quarter. Service delivery units do not have sufficient resources for majority of the fiscal year and in the last quarter are constrained for time to spend the funds available.

The tax administration performance has declined as rules governing assessment, controls over tax payer registration and monitoring compliance for sales tax on services are not fully established. In 2014, the provincial government established Balochistan Revenue Authority (BRA) to collect sales tax on services which is now the largest provincial tax. BRA is a nascent entity and the rules governing assessment, controls over tax payer registration and monitoring compliance are not fully established. This has led to a lower rating for indicators related to tax administration.

Since last assessment, the performance related to external scrutiny and audit largely remains the same. There is an improvement in the timeliness of external audit but audit coverage has decreased. Huge backlog of unexamined audit reports still exist before the PAC. Hearing of the Public Accounts Committee (PAC) when in session, are extensive but compliance with PAC directives remains low. Legislature is still only allowed two weeks to review budget proposal.

Published in Dawn, November 4th, 2018