Weak fiscal federalism is a major snag in quickening the pace of economic development and ineffective accountability with erratic cash flows serving as a drag on timely project execution, particularly in Sindh.

The purse strings of the provinces are controlled by the federation and that of the districts by the provinces, creating a multi-layered control system embracing the three- tiers of government. It lays bare the worst form of bureaucratic web built around elusive "fiscal discipline and prudent spending." Both efficiency and productivity suffer.

"A large number of development projects have accumulated in the pipeline" say sources in Sindh government. They attribute the delays in project execution to a variety of factors but the core issue is that of the timely financial releases to match the schedule for project completion. There is deep wedge between the custodian of funds and project managers and "owners/sponsors."

In case of financial crunch, the disbursement of funds is delayed. The axe falls on development budget and social spending is relegated to the lowest priority.The financial managers show a sound financial position through questionable means.

Similarly, financial releases as per provincial budgetary allocation for the local bodies are not transferred to district government Account No.4 made mandatory in the Local Bodies Ordinance (LBO) 2001 but are retained in the provincial exchequer in violation of the LBO.

Unlike Sindh, the Punjab government places all district funds in the Account No 4. Sindh, a multi-ethnic province run by a coalition of heterogeneous minority parties imposed on the province by Islamabad, is pulling in different directions.There is no working harmony on the basis of respect for each other's rights.Punjab has a majority party rule with a single ethnic base.

Often amounts earmarked for LB projects cannot be utitilized on account of delayed financial releases by the federation or the provinces and the unused amount lapses which has to be re-validated in the next fiscal after a lot of bureaucratic hassles.

A frustrated official committed to development planning at the grassroots level laments: Why the district funds are not being put in account number four. Why should these funds lapse and then revalidated for prolonged delays running into several months. Why should district funds be frozen for non-utilization ? We tend to fail every system. Our problems will continue to accumulate like this."

He reckons that "the resources of the districts are being kept in the provincial exchequer to show that provincial finances are sound. The district governments have no restrictions to develop projects. They are fully empowered to do so. Why are they being denied this right." The Hyderabad district has been demanding that financial releases be put in the district account.

In the first six months of the current fiscal, only about 20 per cent of Rs165 billion allocated for Public Sector Development Programme(PSDP) are stated to have been utilized. Social spending has remained in the neighbourhood of ten per cent. This has been brought out in a review of the PSDP implementation in Islamabad towards the closing days of December 2003.

Too many projects are being launched to show to the people that the government is doing so much for them. And there is not enough money to complete them on schedule. Resource constraints delay development projects. The coat is not cut according to the size of the cloth.

However, officials state that since the beginning of 1990s, the number of ongoing projects have been reduced proiritizing and reducing schemes although the comparative figures were not immediately available.

In case of mega- projects, quite often there is lack of absorbing capacity when funds are allocated as in the case of Karachi Water Supply Scheme (K-3). Of the Rs1.5 billion earmarked for the scheme, not a single rupee was utilised for two years 2001-02 and 2003-04 since the PC-I and contract documents were not ready. Consultants were not engaged. Tenders were not floated.

Now 16 contracts have been awarded for K-3. In PSDP 2003-04, Rs500 million have been earmarked. During July-December 03, only Rs125 million have been released. There is demand for the remaining amount and an additional amount of Rs1 billion. "you should not expect the contractors to tie down all their funds in a slow moving project," says a stakeholder and adds" Timely funding and non-release of funds is a major problem."

If you spend on ten small projects, the absorbing capacity is much higher,economic progress is faster and economic benefits are widely dispersed, says a planning official.

Social spending is the worst hit by very low allocation and much slower financial releases because interests are focused on physical infrastructure, on bricks and mortars, where juicy contracts yield lucrative benefits for individuals. Managers of foreign-aided projects are changed quickly. And sometimes, a mega-project may have ten or more managers before it is completed. The outcome is delayed execution.

Investment in human resources brings no windfall. The recruitment of doctors and teachers is delayed. Many are worried about recruitment of teachers, doctors, technicians, procurement of books and medicines etc for about 500 health units and 2500-3000 schools and educational units which are nearing completion in the province.

The local community is not involved to monitor the operations of schools and dispensaries. So, you find doctors and teachers absent from duty and institutions are not functioning properly. There is no community ownership and the community is not empowered to monitor.

There are widespread complaints that the cost of donor aided projects is inflated because of delays in financial releases and the failure to have buildings suited to the local environment.

A school room built by the community costs about Rs0.1 million but the officially designed similar construction costs Rs 0.2.5-0.3 million, says a community leader.

Over the years, the share of development spending in the overall budget has fallen rapidly with few exceptional years when it has picked up.The actual utilization of funds on Sindh ADBP as a ratio of the overall provincial budget has dropped from 26.79 per cent in 1990-91 to 5.31 per cent 2002-2003.

The World Bank Financial Accountability Assessment Report says, "the accounts are not accurate or reliable. Provincial accounts have not been made public for many years." Large fiscal deficits have been persisting.

In a recent seminar, Sindh's Finance Minister Syed Sardar Ahmad said there should be complete de-federalisation and provincialization to ensure effective accountability. Yet when it comes to putting local bodies funds in the district government accounts, there is a failure on the part of the province to observe the provisions of the LB Ordinance.

Fiscal federalism has yet to materialize. Provinces depend excessively on federally-generated tax revenues(80 per cent) and foreign loans contracted by Islamabad. Historical value of abolished octroi tax is denied to the districts.

Centralization of tax collection deprives Sindh of a legitimate share of its revenues generated within the province including sales tax. Finally, the development programme suffers because erratic financial releases.

Sindh's elected representatives have very little control over the provincial finances. In a democratic set-up, the government is accountable to the tax payers or the common citizens whom it is expected to serve. And the government's accountability is established through periodical elections. The rule of law requires democracy.

Sindh's finance department says that it has released Rs2.4 billion in first quarter of 2003 i.e. 22 per cent of the ADP, as against last year's comparative 20 per cent. The utilization was a mere Rs556 million of the released amount. The total size of the budget is Rs104.28 bn and development outlay is of Rs14.73 billion.

There is always a shortfall in the flow of funds that reduce the development programmes. A major portion of funds are often released in May-June to institutions that, in some cases, may remain unutilised. The amount lapses.