Economies required by federal, provincial governments

EDITORIAL  (January 29, 2011) : Waqar Masood, the newly appointed Finance Secretary, while talking to media persons subsequent to a critical meeting that was held with the provincial governments, revealed that there was an agreement on two major policy decisions.

First and foremost, the provinces were reminded to remain within the agreed deficit limits: the reduction of the budget deficit by 1 percent of Gross Domestic Product (GDP). Recent news reports indicated that some of the provinces, particularly Punjab, had exceeded its budget deficit ceiling. In response, the Punjab government, as well as the other three, were at pains to point to the federation’s decision to raise the salaries of bureaucrats by 50 percent as the major factor responsible for the higher-than-targeted budget deficit.

The Centre rightly averred that heavy subsidisation of the sasti roti scheme and the corruption that was unearthed in its implementation, also acknowledged by the Punjab Chief Minister, was indicative of poor governance. Be that as it may, there is enough evidence that governance remains an issue at both the federal and the provincial governments’ level and that until and unless, steps are taken to improve governance, budgetary expenditure allocations and revenue generation would remain hostage to corruption and mismanagement. Meetings between the Centre and the provinces to discuss the issue of containing the budget deficits have been held in the past but the outcome three years down the line has not been positive.

However, Masood presented a positive picture for the first time when he revealed that the provinces had been able to show a cash balance of Rs 69 billion achieved by reducing expenditures. The budget had envisaged a cash balance of Rs 167 billion for the entire year to achieve the consolidated fiscal deficit of 4 percent of the GDP. This balance was to be generated through higher allocations to the provinces under the 7th NFC Award. The provinces maintain that the revenue collected for the divisible pool has been lower than estimated in the budget and therefore their ability to reduce the deficit by 1 percent of GDP is compromised in the current year.

Financial autonomy, a long standing provincial demand, does not mean that the onus of all politically unfeasible tax measures rests with the federation. It is critical for the provinces to tax income that remains untapped. This has particular relevance to the imposition of a tax on the income of the rich landlords, a provincial subject constitutionally. At the same time the provinces and the federation need to be more proactive in devolving the ministries to provinces, as agreed in the NFC.

At present, the provinces are resisting the transfer of staff of these ministries, while the Centre is reluctant to direct the concerned ministers to step aside. However, even the 167 billion rupees consolidated provincial surplus, if realised, places the onus of the almost doubling of the federal government’s deficit estimate to 7.5 percent, according to informed sources in the Finance Ministry, at the doorstep of the Centre.

There is mounting evidence to suggest that the federal government has not yet practised economies in its current expenditure. The development expenditure has been slashed by 50 percent with the Finance Ministry urging the Planning Commission to slash another 25 percent from this account. Meanwhile, current expenditure remains untouched and the rationale for this according to the government is its inability to curtail either interest payments plus any principal due (which would negatively impact on the ability to borrow), or the defence expenditure in the ongoing operation against terrorism, which in all probability is the raison d’etre for the Kerry-Lugar bill envisaging 1.5 billion dollars per annum injection.

Masood also revealed that there was agreement that those departments that were not paying their electricity bills would face disconnection. This is a positive sign and one hopes that this extends to the federal ministries/departments as well. This would go some way in eliminating the inter-circular debt that remains a major impediment to the failure of the generating companies to operate at optimum capacity. – Brecorder