Committing to an increase in the tax-to-GDP ratio from 1.2 per cent to 1.5pc over the next three years, Sindh has agreed to comply with all fair demands of the International Monetary Fund’s (IMF) fiscal framework to help achieve stabilisation and halt the economic slide.
However, Sindh’s position was inflexible on proposals that either infringed on the hard-earned provincial fiscal rights or sought to burden the poor for the mistakes or weak performance of the federal administration.
Sindh Chief Minister Murad Ali Shah, who also holds the finance portfolio, sounded unambiguous in the statement that the provincial finance department sent to Dawn on his behalf.
‘Further squeezing the development spending will only suffocate the economy and alienate people’
“Yes, the government of Sindh has agreed to raise its cumulative tax-to-GDP ratio from 1.2pc to 1.5pc in three years.
“No, we can’t agree to present a surplus budget unless the federal government guarantees the collection of more than Rs500 billion over and above the normal trend of annual increase in revenues.
“During the current year, the federal government’s collection is so low that it is impossible to post a surplus. The federal government will have to improve the tax collection performance for the provinces to be financially comfortable enough to respond positively to the IMF demand,” read the statement.
In the midst of a busy budget-making season, the Sindh government along with other provincial hierarchies participated in the ongoing parleys with the IMF team in Islamabad for a viable economic package. Pakistan is seeking support from the IMF ($8-12bn) to ease pressure on the external front and restore the fiscal discipline necessary for sustainable growth.
Another key member of the Sindh economic team who is privy to recent interactions with the centre/lender said the provincial government took the position that it wanted to maintain the development budget at the last year’s level despite fiscal distress. “We believe that further squeezing the development spending when private investment is low will only suffocate the economy. It entails the risk of alienating people. It can create space for anti-social elements in society and lead to chaos, which can provide a perfect excuse to wrap up the democratic system,” he said.
According to a fact sheet forwarded by the finance department, Sindh’s share in the divisible pool for 2018-19 was Rs605.2bn, which comes to Rs504bn for 10 months (July-April). Instead, only Rs380.9bn was transferred to Sindh, which shows a shortfall of Rs123.4bn.
The said document depicted that the performance of the Federal Board of Revenue (FBR) has worsened over the past year. In the first 10 months of 2018-19, the FBR’s tax collection remained 75pc of the target as opposed to 88pc a year before.
The budget for straight transfers was fixed at Rs43.5bn. The proportional share for 10 months is Rs36.2bn against which only Rs32.6bn has been received, signifying a shortfall of Rs3.6bn, says the document.
The total budgeted federal transfers for Sindh during the current fiscal year were Rs665 bn. The proportionate transfer claim for 10 months is Rs554.2bn. But the actual federal receipts are Rs423.8bn i.e. 76.5pc of the target.
A source in the Sindh Revenue Board claimed the agency performed better than its counterparts in the centre and other three provinces. At the end of the first 10 month, the revenue collection touched the Rs78bn mark against the proportional target of Rs91.6bn. There is a shortfall of about 15pc that the tax collectors hoped to cover in the last two months. “The annual collection target of Rs110bn will hopefully be exceeded when the final numbers turn in at the close of the current fiscal year,” an officer who wished not to be identified told Dawn over the phone.
It is not surprising provincial receipts as a percentage of general revenue receipts increased in Sindh over the last 10 years. From 16.7pc in 2010-11, the ratio has increased to 25pc. The share of federal transfers in general revenue receipts of Sindh, meanwhile, decreased from 83.3pc in 2010-11 to 75pc in 2017-18.
“The tone and tenor of the Sindh government appear to be different from the provincial ruling party’s central leadership. While PPP parliamentarians are critical of Imran Khan’s government for capitulating to the IMF’s pressure, the Sindh government has adopted a more pragmatic stance. It is productively contributing to the ongoing discussions with the key lender,” an expert commented.
“If you ask me, criticism of the PTI government by both the PPP and the PML-N rings hollow. In the past, their governments also engaged with the IMF to get relief and achieve stabilisation. It would be lame to expect too soft a deal with the IMF in a situation that everyone understands is desperate. Much will depend on the skills of the PTI’s new economic team and how well it sells the deal to parliament, the business class and, above all, the people,” he concluded.
Published in Dawn, The Business and Finance Weekly, March 13th, 2019