Three provincial budgets

Punjab, Sindh and Khyber Pakhtunkhwa (KPK) provincial finance ministers presented their budgets to their respective assemblies on the same day – 17th June – which must lead to comparisons between the three as the recently completed election process led to three different parties in government in the three provinces.

The single most salutary outcome of an overwhelming majority of PML (N) in Punjab, PPPP in rural Sindh (which explains its offer to the MQM from urban Sindh to join its government), and PTI with an overall majority in KP was the obvious attempt by all three parties at one-upmanship in terms of expenditure allocations on the social sectors. These allocations, if implemented, would benefit the people of the provinces. This objective continued to be compromised by the constraints posed by general public service outlay for all three provinces, an outlay that would be revised upward subsequent to the federal government’s decision to succumb to pressure and raise salaries and pensions by 10 percent in deference to the power wielded by the civil bureaucracy. The gung-ho attitude of KP government to try to best the PML (N) by raising salaries by 15 percent has little merit given that the PPP government had raised civil service salaries by more than the rate of inflation during the past three years and the depleted treasury grappling with an unsustainable budget deficit. The PPP’s decision in Sindh to raise salaries of grade 1 to 15 by 15 percent (instead of the 10 percent applicable to those in grades 16 and above) was indeed a better approach under the constraints imposed by the federal government. This post-budget decision implies that general public service outlay would be much higher than budgeted or higher than 105.2 billion rupees (21 percent of total expenditure by Sindh), 64.7 billion rupees by KP (or 18.8 percent of the total) and 95.4 billion rupees by Punjab (7.9 percent of the total).

The PTI, keen to show differences with the other two pre-2013 major parties, announced an allocation of 102.4 billion rupees on education, or a whopping 29.78 percent of the total budget. Sindh with higher literacy rates relative to KP but with a much larger population allocated 134.2 billion rupees or 26.95 percent of the budget on education.

Punjab inexplicably announced it would spend only 40 billion rupees on education though the Chief Minister did indicate that one of his pet projects from the party’s last term in government namely Daanish schools (allocated 3 billion rupees) would continue. While this amount is more than double the 15 billion rupees the Punjab government earmarked in 2013-14 yet compared to the other two provinces this falls far short of requirements.

Punjab’s focus was however on investment which was allocated 290 billion rupees. From an economic perspective a rise in investment will raise output as well as employment opportunities. This includes 20 billion rupees for energy projects (doubled from last year), 92.2 billion rupees for agriculture infrastructure including irrigation canals, roads 96.9 billion rupees (a traditional PML (N) priority), water supply and sanitation, urban development and transport. In contrast the Sindh budget envisages 23.4 billion rupees on roads (3.8 percent of total), 72.7 billion rupees on agriculture, forestry and education estimated at 11.7 percent of the total (likely to positively impact on the PPP support base in rural Sindh) and only 5.3 billion rupees on urban and regional infrastructure (0.9 percent of total).

However, Sindh earmarked 785.7 billion rupees for creating jobs, introducing internship employment and self-employment schemes for youth and poverty alleviation under the Benazir Income Support Programme. KP envisages only 17.6 billion rupees on agriculture, forestry and irrigation (5 percent of total), 26.1 billion rupees on urban and regional infrastructure (7.6 percent of total expenditure) and 20.7 billion rupees on roads (6 percent of total).

Punjab allocated 275.4 billion rupees (22.8 percent) on local government, the only party not overly supportive of local government elections while Sindh allocated 39.3 billion rupees for local bodies. This may have to change if MQM takes the PPP on its offer to join the provincial government. KP government is committed to holding local government elections.

Where Sindh clearly took the lead was in revenue generation. Sindh’s reliance on the divisible pool is less than 21 percent while for Punjab it is more than double i.e. 59.5 percent and KP’s is almost 60 percent though if one adds the hydel profits/royalties payable by the federal government the figure is much higher. Punjab’s provincial taxes and revenue account for only 14.4 percent of its total income – the rest including an estimated 278.5 billion from domestic borrowing (23.6 percent), and 29.7 billion rupees (2.5 percent) foreign assistance.

In marked contrast Sindh budget envisages 120.2 billion rupees as its own resources (including 42 billion rupees from sales tax on services) which comes to 21 percent reliance on domestic resources and indicate the province’s proactive approach in raising its revenue by taking advantage of the greater financial autonomy.

KP performed the most poorly in terms of provincial revenue generation in its budget and relied on 6 billion rupees from its own resources and imposed a one percent tax on Afghan Transit Trade. It is unclear if this tax would violate the agreement signed between the US and Pakistan, an agreement which had led to the release of the withheld Coalition Support Fund.

The budgeted deficit for Punjab, Sindh and KP is 30 billion rupees, 21.6 billion rupees and 10.7 billion rupees respectively.

To conclude, there are merits and demerits in the three provinces but one would hope that there are lessons learned from each other. Punjab must learn how to raise its domestic revenue from Sindh while Sindh would do well to learn the importance of investment to jump-start the economy. KP is an ambitious budget in its own respects and if education does receive the budgeted amount it would have a salutary effect on nipping the recruitment drive of the Taliban, which is the province’s number one problem today.