KARACHI: It’s that time of year again when finance ministers at both federal and provincial levels proudly announce major hikes in development budgets amid a loud thumping of desks by legislators.

Populist rhetoric containing eye-popping percentage increases in allocations for development schemes draws jubilant applause. But few pay any attention to the hundreds of billions of rupees that go unspent every year despite being released by the respective finance departments.

A case in point is Sindh. Official data containing the fund release position of the public-sector development programme shows that Rs38 of every Rs100 released by the finance department remained unspent by the end of May, second-last month of 2022-23.

In other words, the Sindh government could spend only 62 per cent or Rs214.9 billion by May 26 even though the finance department had released Rs346.9bn.

What’s worse is that the total released funds of Rs346.9bn in the first 11 months of 2022-23 constituted only 75pc of the originally allocated amount of Rs459.6bn, official data shows.

Non-utilisation ranges 38-69pc in education, health and environment departments

The spending of released funds by different ministries and departments also remained uneven. Departments that achieved the highest percentage of expenditure against funds released under the provincial development programme included excise and taxation (100pc), Thar coal infrastructure (100pc), provincial assembly (99pc) and information, science and technology (98pc).

However, education, health and environment departments could spend only 62pc, 52pc and 31pc, respectively, against the available funds in the 11-month period.

“The unspent funds are carried forward to the next year’s budget,” said Murtaza Wahab Siddiqui, spokesperson for the Sindh government. Speaking to Dawn on Saturday, Mr Siddiqui said the underutilisation of released funds meant for development schemes is a chronic issue existing because of three major reasons.

One, the procurement process that every government-sponsored development project must adhere to is “tedious and cumbersome”. That alone is responsible for the snail’s pace at which development work progresses at least in the first quarter of every fiscal year, he said.

Two, constant litigation against development schemes slows down the pace of work to a major extent, he said, while referring to multiple projects in Karachi that’ve hit snags because of stay orders.

Three, cost overruns arising out of the widening gaps between project approvals and actual work mess up the budgeting exercise and lead to further delays, he said.

Mr Siddiqui denied the perception that the Sindh government has become too lazy to even spend the money readily available in its kitty following the seventh National Finance Commission (NFC) award, a formula notified in 2010 for distributing national funds between Islamabad and the provinces as well as among the provinces.

The award increased the share of the provinces in the divisible pool — which consists of income and corporate tax, sales tax on goods, and excise and import duties collected by the federal government — to 57.5pc from 47.5pc while reducing the share of the federal government by 10 percentage points to 42.5pc.

Some analysts believe the “easy money” doled out by the federal government every year has left the provincial governments with little incentive to generate their own tax revenues in high-potential sectors like agriculture and real estate.

Almost two-thirds of the total revenue of Rs1.68 trillion that the Sindh government budgeted for 2022-23 was under federal transfers. Meanwhile, accounts of the federal government are in deficit from day one of every fiscal year, making debt servicing a perpetual challenge for all governments in the centre.

However, Mr Siddiqui reiterated that Sindh’s tax mobilisation, especially under the head of sales tax on services by the Sindh Revenue Board, has been far better than that of the Federal Board of Revenue (FBR) in the pre-devolution years.

“Let us collect the sales tax on goods as well, and then see how much revenue we mobilise,” he said. Noting that the FBR collects taxes on business activities that take place in the provinces, he said the money returned by the FBR rightfully belongs to the people of the province.

The NFC award preceded the 18th constitutional amendment by six months, which means the 2010 formula of funds distribution didn’t take into account the devolution of subjects like health and education to the provinces, said Mr Siddiqui.

“Our share in the NFC award should rather go up given that the provinces are now responsible for so many subjects that previously fell under the domain of the federal government,” he added.

Published in Dawn, June 4th, 2023