ISLAMABAD: The four provinces jointly provided a whopping cash surplus of Rs202 billion to the Centre during the first quarter (July-September) of the current fiscal year to help meet its fiscal targets committed to the International Monetary Fund (IMF).

This means the provinces did not utilise more than one-fourth (25 per cent) of the funds for the welfare of their citizens made available to them under their total revenue share out of the federal divisible pool. In doing so, the provinces over-performed in extending the cash surplus to the federal government as their cumulative refund to the Centre amounted to Rs202bn (almost 48pc) in a quarter against an annual target of Rs423bn set for the financial year 2019-20.

Fiscal data released by the finance ministry showed that the cumulative revenues available to the four provinces in the first quarter amounted to Rs791bn. This included their joint share of Rs612.5bn out of federal revenues and about Rs104.5bn worth of provincial taxes.

Against this, the provinces spent only Rs589bn and returned Rs202bn to the Centre. They spent only Rs70.6bn on their development schemes meant for improving the living standards of their citizens.

The whopping cash surplus refunded to help federal government meet its fiscal targets committed to IMF

The provincial development spending, therefore, remained less than 9pc of their available revenues.

The data showed that the three provinces ruled by the Pakistan Tehreek-i-Insaf or its allies were more frugal in development spending and overzealous in cooperating with the Centre for maximum fiscal support. This reflects poorly on the capacity of three provincial governments of Punjab, Khyber Pakhtunkhwa and Balochistan to execute schemes for development and improving the quality of life for their people.

For example, Punjab extended a cash surplus of Rs75.4bn — almost 21pc of its total revenue of about Rs366bn. In contrast, its development spending at Rs43bn was less than 12pc of its available resources.

The KP government could not spend almost Rs54bn — about 38pc (more than one-third) of its available resources of Rs141bn. In comparison, the province spent only Rs8.4bn or less than 6pc of its total resources on improvement of living standards of its citizens.

The data showed that Balochistan returned about Rs37.3bn to the Centre — a staggering Rs43.4pc out of its total revenues of Rs86bn. On the other hand, the largest province in terms of area, and considered the most backward among the four federating units, spent a miserly Rs3.7bn, or 4.3pc of its resources, on development schemes.

In contrast, Sindh provided the lowest cash back — Rs35.5bn — to the Centre, accounting for less than 18pc of its total resources — a typical stance of an opposition party in power in that province. The Sindh government spent about Rs16bn or 8pc of its resources on development schemes. This showed the province was no better than other provinces when it came to development activities but had some other reasons to book higher expenditures during the first quarter of the current fiscal year.

The provincial spending behaviour is constrained by a requirement of the IMF programme to show strong commitment supporting the consolidation effort of the federal government for an effective public financial management and improving the quality and efficiency of public spending.

The federal government has given a written undertaking to the IMF that fiscal consolidation and revenue expansion by the provinces will be a key component of its fiscal strategy. As a prior action to the IMF programme, the government wrote: “The fiscal adjustment strategy would imply large provincial surpluses. Therefore, we have signed a formal written agreement with the provinces on the fiscal strategy and the required provincial surpluses, including revenue and fiscal surplus targets by provinces for FY2020 and implications in case of missed targets.”

The Centre has also promised that “progress toward these goals will be assessed in quarterly meetings of the Fiscal Coordination Committee” that would be strengthened for legal basis to make its decisions binding.

In order to rebalance inter-governmental relationships in the context of the National Finance Commission, the Centre has also reported to the IMF that it had engaged with the provinces to pass on additional spending responsibilities to the provinces, including additional contributions to higher education, health, social protection, agricultural subsidies and regional public infrastructure investment.

Under the IMF programme, the government is also required to create a joint contingency fund to deal with economic shocks and natural disasters and reduce federal and provincial structural fiscal imbalances, besides additional tax collections by the provinces and reducing the scope of divisible pool.

Published in Dawn, December 9th, 2019