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Effects of political turmoil evident in Balochistan

Balochistan has squandered a big opportunity presented by the increased federal transfers under the 7th National Finance Commission (NFC) award to put its fiscal house in order and somewhat reduce its development gaps by resetting its priorities.

With the province’s current expenditure accounting for three quarters of its estimated income —that also includes expected foreign loans and grants, commercial debt, etc — its development throw-forward has drastically shot up to Rs200.4 billion or 267 per cent of its budgeted development investment.

The sharp increase in its development throw-forward is blamed on the washed-up political priorities of the coalition government led by the Pakistan Muslim League-Nawaz (PML-N) under chief ministers Abdul Malik and Sanaullah Khan Zehri that returned to power in summer of 2013.

The government has since been dislodged in a rebellion just before the controversial Senate elections in March this year, within the PML-N.

For Balochistan the window of opportunity to reform its finances is fast closing owing to poor governance and weak management of public finance brought about by political expediency of the rulers

The 2018/2019 budget documents show that the coalition governments of both Malik and Zehri had a strong tendency of creating future liabilities by allocating more money for new schemes, than completing the old ones, to please provincial assembly members in a bid retain loyalties in a highly fragmented house.

This tendency also reflects in huge ‘block allocations (of up to a fifth of the development investment) for unidentified and unapproved schemes’. This kind of fiscal indiscipline has resulted in hundreds of unfinished schemes across the province that will cost the people dearly because of time and cost overruns.

While deciding allocations, the documents show, the provincial government has deliberately chosen to ignore sectors like agriculture, fisheries, minerals, etc— again for political reasons — despite the fact that the livelihood of thousands of people depend on the development of these areas of the provincial economy.

Additionally, the federal government’s allocations from the federal Public Sector Development Programme (PSDP) for the largest but sparsely populated province have been far less than desired and promised.

The operational cost of the government has seen a rather fast growth compared with its development budget because of the province’s ever increasing pay, pension and subsidy bill.

The government’s total current expenditure of Rs263.9bn, or 90pc of its total expected income, will make up around three quarters of the bill.

With the government being the largest employer because of a virtually non-existent private sector in the province, its pension bill alone has increased by an average 27pc during the last three years and is estimated to rise by 33.3pc next year.

The salaries and allowances of provincial employees are projected to register a growth of 12.8pc, and debt and interest payments increase by 14.8pc.

Balochistan is more heavily dependent on federal transfers from the divisible pool and straight transfers than any other province because of its underdeveloped economy.

The 7th NFC award had massively boosted the province’s income from federal transfers because of a spike in the combined provincial stake from the divisible pool and increase in Balochistan’s share owing to a change in the formula for horizontal distribution of the available resource.

The federal government also agreed to pay the unpaid Gas Development Surcharge (GDS) of Rs140bn in 10 years. Additionally, the province was guaranteed federal transfers on the basis of (federal tax) revenue targets instead of actual collection.

But the window of opportunity to reform its finances is fast closing owing to poor governance and weak management of public finance brought about by political expediency of the rulers.

Unless the provincial government improves public finance management to create fiscal space for bridging infrastructure gaps, plug leakages and control widespread corruption to attract private investments, Balochistan will continue to depend on federal money and struggle with resource constraint for development.

Published in Dawn, The Business and Finance Weekly, May 21st, 2018

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