Balochistan obtained overdraft of Rs16 billion from the State Bank of Pakistan up to June 30, 2006 but in the last seven months of the current year no further overdraft was taken. It was paying 22 per cent interest annually on cash development loan (CDL) while it has obtained soft loan at 3.7 per cent from the ADP to get rid of the hard loans pending against it. After paying the CDL, Balochistan has saved Rs1.5 billion annually.
The provincial government is implementing an estimated Rs10.82 billion public sector development projects. It prepared Rs6.3 billion ADP, expecting to get Rs700 million under the Poverty Alleviation Programme, which the federal government did not grant. Only a sum of Rs3.76 billion was available for foreign-funded projects. The provincial finance minister claims that despite the shortfall he managed and released Rs7.8 billion for this year’s development spending. The official sources claimed that about 68 per cent of the uplift work stood completed at the end of the third quarter. The province would receive around Rs33.8 billion from the centre as its share in the federal resources.
Loan strategy: The government planned to repay Rs9 billion Cash Development Loan (CDL) to Islamabad after receiving funds under the Balochistan Devolved Social Services Programme (BDSSP) and second instalment of the Balochistan Resources Management Programme (BRMP) from the Asian Development Bank.
The province received $135 million (Rs8.1 billion) from the ADB (BDSSP), out of which $110 million (Rs6.5 billion) have been used to retire CDL.. Another amount of $45 million (Rs2.7 billion) was received under the BRMP , out of which Rs2.5 billion was paid against the CDL. Over Rs9 billion were repaid. The SDL will be cleared after receiving second instalment under the BRMP. Now the CDL outstanding is at Rs3.5 billion.
The loan strategy has changed the Rs9.3 billion overdraft into soft-term loan. The federal government bears the currency fluctuation of ADB loan. The provincial government was able to contain the bank overdraft in the vicinity of Rs16 billion by prudent fiscal policies, better management and tightly controlled expenditure, officials claim. The overdraft of the State Bank on July 1, 2004 was Rs10.3 billion that had increased to Rs17.26 billion in July 2006.
During first six months of the current fiscal year, Balochistan’s interest repayments had exceeded Rs250 million per month taking its overdraft to the highest ever Rs16 billion. The provincial government was forced to freeze its current expenditure and development programme almost last year’s level. During this critical period, the province was forced to spend Rs3 billion per year in the shape of interest payments.
Law and Order: During the current fiscal year, Balochistan’s higher share under the interim NFC award was eaten up by additional expenditure on law and order, reduction in oil and gas production and higher pay and pension bill imposed by the federal government. After six months, the province was forced to seek a capital injection from the federal government— either through special grants or advanced proceeds of natural resources — as an increase of Rs4 billion in its federal divisible pool share had been offset by the law and order in the province.
There had been a loss of Rs1.7 billion in the royalty and gas development surcharge proceeds owing mainly to much lower gas production as a result of law and order problems and supply disruptions. The Sui, Loti and Pirkoh gas fields have faced severe interruptions . A number of additional security posts were built and related infrastructure provided to protect gas installations. By December last, Rs700-Rs800 million had been spent on direct enforcement of law and order, while another Rs1.6 billion burden came as a result of an increase in salaries and pensions announced by the federal government.
The provincial government had to incur substantial sums of money to maintain law and order in the province particularly in Sui, Loti and Pirkoh areas of Dera Bugti districts because many transmission lines came under rocket attacks during the year. The military operation is a huge burden on the provincial exchequer.
Resource Management: During the first nine months, the provincial government has been engaged in resource arrangement It demanded an increased share from the sale proceeds of the Pakistan Petroleum Limited (PPL). It sought international aid agencies’ intervention to help avert nutrition crisis among 84,000 internally displaced persons in three districts of the province. It has also asked the federal government to reduce the number of federal corporations, utilising more than 33 per cent of the country's total funds, so that the province could get its due share for development. A small Saindak Metals Limited is the only corporation out of total 208 autonomous bodies based in Balochistan.
In January, the provincial government decided to immediately repay Rs9 billion cash development loan of the federal government by arranging ADB funds. The province was paying Rs1.5 billion interest on the cash development loan annually that was provided to the province at 22 per cent interest.
It was conveyed to the centre that the province required additional grants, or other capital receipts in the form of proceeds of land from the Gwadar port where a number of federal and provincial agencies were involved in utilising and disposing of land — a provincial resource — to develop port facilities.
A sum of Rs572.7 million was received from the centre under the head of Bolan Medical Complex in Quetta through the Accountant General of Pakistan. The amount was deducted by the centre from the provincial account although the federal government had initially decided to bear the cost of construction of the complex.
The province also received Rs1.34 billion from the federal government under the head of royalty and gas development cess while the matter of Uch Gas field is pending before the ministry of petroleum. It has also taken up the matter of Rs12 billion on GDS with the federal government as the gas companies had deposited the amount in the account of the centre. The federal government has so far given Rs3.3 billion out of Rs12 billion.
The federal government is expected to double its funding to Rs100 million for every district under the special Khushhal Pakistan Programme. Moreover, the overall financial inflows would be improved so that it could meet its urgent financial liabilities.
Revenue base: It is ironical that a loan has been paid through loan. Loan, say soft or hard, is after all a loan. It is not a solution to the perennial financial problem.. This year, the federal government has opened the mega seaport at Gwadar and announced another port at Sonmiani.. But what the province has gained in terms of its financial health, which is worst-affected with the vicious cycle of debt and interest payments.
The Balochistan exempted the Gwadar port operators from all local and provincial taxes for 20 years . When all taxes stood waived, what would Balochistan get from the Gwadar port project? On revenue generation side, the Gwadar project is not going to strengthen the fiscal base.
On the other hand, the officials claim that provincial government has succeeded in a three-fold increase in its revenue in the current fiscal i.e. from Rs800 million to Rs2,500 million.. The ADP for the current fiscal year is estimated at Rs10.82 billion, while the current expenditure stands at Rs37.45 billion, resulting in a deficit of Rs10.963 billion. Resource transfer to district governments under the revised budget estimate has been increased from Rs12.21 billion to Rs14.76 billion. An amount of Rs600 million has been set aside to strengthen the district government system in the province.
Negotiations continued with the federal government over the outstanding dues of Balochistan pending against it in the account of gas development surcharge (GDS) and other financial matters but without yielding any fruitful results.
There is a pressing need to widen the revenue base of the province, which can be achieved through boosting economic activities. The scarcity of resources demands judicious utilisation of funds from the ruling elite of the province. For strengthening its revenue base, the province needs a major revenue-yielding tax levying authority.