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Exemplary financial discipline

June 17, 2012


INELASTICITY of provincial taxes, not least because of underdeveloped real sectors — industry and agriculture — and weak services industry, makes Balochistan’s development heavily dependent upon its share from federal taxes and occasional grants.

The province’s tax revenue for the next financial year is just over 1.7 per cent of its share of Rs114 billion from federal taxes and 1.4 per cent of its revenue income of Rs149 billion.

“The development of Balochistan, a victim of decades of neglect, is a daunting job,” says an official of the finance department.

The vastness of area — the province is 44 per cent of Pakistan, scattered population, tribal society and insurgency make the job of the coalition government quite difficult, he says.

He, however, underscores the lack of sufficient financial resources to meet the development needs of people and build infrastructure for industry and agriculture as the biggest challenge of all for policy-makers.

The province has raised its development budget to Rs35.8 billion for the next financial year from Rs12.78 billion in 2008 thanks to its increased share under the National Finance Commission (NFC) award. Still its appetite for more funds for building economic and social infrastructure is rising due to growing cost of development and supply gap.

Politicians and officials agree that the task of developing the province will become even harder in the years to come unless Balochistan’s share from the federal taxes is substantially increased, which is a near impossibility at the moment.

So how to create fiscal space for development? “The development of its mineral resources and its long coastline for generating financial resources is the only hope for the people of the province,” an official says. He claims that the provincial government is already moving in that direction, though very slowly because of legal issues involved.

The plan to set up the Reko Diq Copper Refinery Plant, for example, is one such project.

“The government has been setting aside money for this project for last couple of years but is unable to move ahead because of litigation in Pakistani and foreign courts,” he defends the government.

In the meanwhile, the Balochistan government intends to make the provincial investment board functional next year in order to take decisions with regards to more than Rs15 billion it had allocated in the last two years for the purpose of making investments to raise provincial revenues. This amount does not include Rs8.5 billion set aside for the implementation of the Reko Diq refinery plant project.

A senior Balochistan finance department says the government could use the investment money to purchase shares in the Oil and Gas Development Company (OGDC) and Sui Southerrn Gas Pipeline Limited whenever the federal government decides to disinvest these companies. “As soon as we get permission for this we will invest our money in the companies,” he says.

A major trend that the Balochistan budget for the next year represents is fiscal discipline. In spite of political pressures in an election year, the provincial government decided against increasing its development programme beyond the resources available.

In an election year, the official says, the governments tend to show deficit in their budgets as have Punjab and Sindh have done in their budgets for the next fiscal. “But our government has resisted this pressure.”

“The provincial government is pursuing a policy of retiring its loans since it came to power. As a result of which, the official says, “we have paid off our overdraft of Rs19 billion with the State Bank of Pakistan, repaid our cash development (CDLs) loans to federal government.”

The provincial finance minister, Mir Asim Kurd, too in his budget speech underlined the government’s commitment to observe financial discipline by raising revenues and cutting expenditure. “We have become the first province to have returned our cash development loans,” he claimed.

Will others, especially Punjab and Sindh, follow Balochistan’s example and put their house in order? That remains a question.—Nasir Jamal