The Punjab government’s fiscal problems have worsened and substantially affected development work in the province in the first three quarters of the present financial year to March.

The provincial development spending in first nine months of the year has dropped by almost 70 per cent to Rs108.4 billion, from Rs350.2bn, compared to the same period last year.

The reduced actual spending is just 45pc of the drastically slashed annual development programme (ADP) of Rs238bn. This is just a little more than a third of last fiscal year’s Rs635bn, given by the Usman Buzdar government in its first budget in October (for the later eight months of the year).

“Development works are underway at a very slow speed; only the essential projects nearing their completion are getting funds from the government,” said a Punjab planning and development department official, who spoke on condition of anonymity because he is not authorised to publicly give statements.

The Punjab development spending in first nine months of the year has dropped by almost 70 per cent compared to the same period last year

He listed a substantial increase in the current expenditure on payments of salaries, pensions, debt and so on. There has been a reduction in the estimated size of federal transfers and a significant shortfall in the collection of provincial tax and non-tax revenues. The federal government has demanded a cash surplus of Rs147.8bn to help Islamabad control its fiscal deficit.

Punjab’s current expenditure has shown a sharp rise of 16.7pc to Rs769.8bn from a year ago in spite of the ongoing ‘austerity’ drive of the government. The province’s estimated share from the federal tax divisible pool under the National Finance Commission (NFC) award is said to have shrunk significantly because of a huge gap in the collection of the targeted taxes.

The provincial tax revenue collection for the first nine months of this fiscal year is already slowing down. In the period from July to March, the provincial civil accounts show, the government has been able to collect just Rs144.8bn or 52pc of the target tax of Rs275.8bn for the entire year. The collected tax is even less — though only marginally — than last year’s collection of Rs146bn during the same period.

Officials insist that a general economic slowdown in the country for the last almost a year and the Supreme Court’s decision that suspended collection of government levies on mobile top-ups are the main factors for reduced tax collection.

The decision has now been reversed by the court and the government is expecting to recover some of it in the next two months to improve its collection.

The major shortfall was suffered in the mobilisation of the provincial sales tax on services, the largest provincial tax source. The services tax collection fell short by 43.3pc of the target for the first three quarters of the year.

It has generated only Rs64.5bn or 42.5pc against the total budget estimates of Rs151.6bn for the entire year. Last year, the authorities had collected more than 57pc of the year’s target of Rs127bn.

Additionally, the province is also struggling to meet its non-tax revenue target of Rs100bn, mainly because of delays in the payment of net hydel profits of Rs41.2bn from the federal government.

‘Development works are underway at a very slow speed; only the essential projects nearing their completion are getting funds’

“In the given circumstances, the provincial administration had a hard choice to make: either further chop the already small provincial annual development programme or refuse to produce the cash surplus it had promised to help Islamabad keep down consolidated fiscal deficit,” the anonymous official asserted.

The government appears to have chosen the first option of reducing the development stimulus. He said the government had implemented certain austerity measures but those could help only so much. “Austerity can never compensate for the smaller tax revenue, it only accentuates the crisis”.

The Buzdar government has set some ambitious targets for itself. It plans to increase development investments to Rs1 trillion, pull 10 million people out of poverty, build 3.5m houses for 20m people and create 6m jobs in the next five years.

However, the attainment of these targets appears near impossible because of the overall economic slowdown and cuts on development investment to produce cash surplus.

Many, including officials and PTI legislators, fear that the cuts in the public development spending is going to have a ‘reverse’ multiplier effect on the provincial economy as it will lead to more job losses and reduction in consumption.

“At the end of the day, Punjab will be seen as dragging down the national growth numbers as well. The solution to economic slowdown lies in stimulating investment to create jobs and putting cash in the pockets of the people, especially lower-to middle-income groups, so that they can spend more. The development cuts only make a sluggish economy more sluggish,” a PTI legislator argued, refusing to give her name because of party discipline.

Published in Dawn, The Business and Finance Weekly, April 29th, 2019