Exercising their autonomy, the four federating units have come up with a mix of deficits, surplus and balanced 2021-22 budgets with a renewed focus on social and economic uplift programmes.

While Punjab and KP did generally follow the policy guidelines set by the central PTI leadership, the specifics in their budgets like that of the two other provinces, show a sharp deviation from the federal budget targets set for them.

The provincial budgets are seen by many as the starting point for a two-year electoral campaign for national polls to be held in 2023. Pakistan’s Democratic Movement’s street politics is expected to resume in early July.

In federal democracy, each unit or entity can pursue its own policy initiatives, falling in its domain, to serve its people. And development economists foresee that the demand for decentralisation — ‘a superior good’ — is likely to grow with per capita income.

The four provinces have announced annual development plans (ADPs) worth Rs1.497 trillion for the next year against the lower federal budget estimates of Rs1.235 billion. The break up of ADPs is as follows: Punjab Rs560bn, Sindh Rs329bn, Balochistan Rs237.2bn and KP Rs371bn.

The absence of elected local bodies is a hurdle in the development of a democratic culture in the country without which inclusive growth cannot be comprehensively ensured

As a consequence, of the two PTI-ruled sub-federations, Punjab has posted a surplus of Rs125bn and KP has announced a balanced budget. Sindh and Balochistan have projected deficits of Rs25.7bn and Rs84.6bn respectively.

There is no indication as to how the Centre’s expectations of the combined provincial surplus of Rs570bn will be created to achieve the consolidated fiscal deficit target of 6.3pc of GDP set for 2021-22.

In their jointly authored article titled ‘A Fragile Federal Budget,’ Dr Hafiz A Pasha and Shahid H Kardar observed: “It is beyond the realm of possibility that the combined provincial surplus will be more than Rs200bn or 0.4pc of the projected GDP.”

With the high rate of inflation, it would be difficult for the provinces to reduce current expenditure. The fiscal balances/imbalances will depend on the pace of utilisation of projected uplift funds. For example, KP was able to utilise only 53pc of the budgeted ADP of Rs317.9bn (later revised to Rs249bn) during the outgoing year.

The performance of the federation and the provinces are deeply linked together. To quote a fiscal analyst, a meaningful engagement of the federation with all provinces, specifically more developed Punjab and Sindh, is necessary ‘for formulating a deliverable federal budget’.

Notwithstanding its commitment to remove regional income disparities, PTI’s policy tilt towards centralisation is creating political disharmony between the federation and its affiliated units, particularly Sindh. The Centre’s 2021-22 budget has provided Rs100bn for regional equalization.

Sindh Chief Minister Syed Murad Ali Shah says, according to the Supreme Court Judgement, the Centre may not initiate development works in a province as it is the right of the provincial government. He was referring to the federal development activities in some parts of Sindh.

However, there are complaints against all governments for ignoring the development needs of constituencies represented in the parliament by the opposition and even coalition partners. The eve of the Balochistan budget witnessed street demonstrations by opposition members of the provincial assembly in Quetta and other places. The provincial finance commissions on the pattern of the National Finance Commission for distribution of resources among districts have been deactivated.

In his budget speech, PML-N President Shahbaz Sharif said “there was lack of trust among the provinces as well as between the provinces and the Centre.”

But the good news is that the representatives of Sindh, Punjab and the Indus River System Authority (Irsa), supported by officials from two other provinces, agreed in a meeting on June 16 to the measurement of water flowing from barrages by neutral international experts.

In the Council of Common Interest meeting held recently, Mr Shah had complained that inspectors deployed at water releasing and receiving points on the Indus River presented inaccurate data that favoured Punjab. Similarly, PPP Chairman Bilawal Bhutto Zardari told the National Assembly that “implementation of the 18th Amendment and NFC (awards) was not optional but a Constitutional obligation.”

With organisations like NFC and those that govern the inter-governmental relationships generally inactive, the participatory fiscal federalism has suffered a setback.

On the other hand, the aspirations of sub-nationalities are focused on securing greater autonomy. Plans are afoot to set up Balochistan Bank following the example of three other provinces.

While the NFC has yet to give a new award, the KP budget 2021-22 shows an unfunded revenue receipt of Rs34.6bn from the Federal Divisible Pool as follows: Punjab would chip in Rs21bn, Sindh Rs10bn and Balochistan Rs3.6bn, amounting to 3pc of the NFC pool. The Centre has included the amount in the federal grant for the KP’s merged districts.

For promoting regional development in a meaningful way, all stakeholders need to evolve a consensus to reduce gradually the distribution of resources on a population basis which disproportionately benefits the most populous province without helping its under-developed regions to come at par with the developed areas. The situation has led to the persistent demand for an independent province of south Punjab.

On the other hand, Punjab’s own projected tax revenues for next year are lower than that of Sindh. The total revenues of Sindh are targeted at Rs304m — though lower than last year’s Rs313.3bn — against Punjab’s comparable Rs272.6bn.

A greater share of the NFC resource pool should go for the removal of backwardness and poverty in all four provinces particularly in less developed regions of Balochistan and Khyber Pakhtunkhwa.

But the third tier of the federation is being arbitrarily run by civil servants through a centralised provincial administration through a cumbersome social delivery system. PTI member of National Assembly from Charsadda, KP, Fazal Mohammad Khan told the National Assembly recently that the local officials had issued him completion certificates of 10 development projects in his constituency but on the ground, only three were completed.

The PTI-led Punjab government has earmarked from its Rs560bn ADP of 2021-22 a sum of Rs360bn for a three-year district development package. It includes Rs100bn for projects to be recommended by the PTI legislators for their respective constituencies.

On the other hand, Sindh has allocated a mere Rs30bn for district ADP out of the provincial development outlay of Rs329bn.

The absence of elected local bodies is a hurdle in the development of a democratic culture in the country without which inclusive growth cannot be comprehensively ensured.

Published in Dawn, The Business and Finance Weekly, June 28th, 2021

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