Punjab’s budget for the next financial year beginning from July 1 — the first by the PML(N)-PPP coalition in the province — indicates a shift in some key economic and fiscal policies pursued by the previous PML(Q) government since 2003.

The most critical aspect of the budget – for the low-income and poor segments of the population – is the announcement of a relief package of Rs17 billion as part of the Rs390 billion revenue budget.

Unlike outgoing year’s so-called pro-poor relief package of Rs25 billion – almost half of which was actually eaten up by the raise in the pays and pensions of the serving and retired government employees and much of the remainder was either misused for political gains or spent without making any difference in the lives of those who were meant to benefit from it , the new government has earmarked Rs10 billion for supporting the purchasing capacity of the poor by providing them wheat flour, ghee and pulses at subsidised rates from franchise shops and Rs3 billion for health insurance for healthcare of the marginalised.

The province has decided against giving cash handouts to the poor because the federal government has already announced such a programme. “Since the centre has already set aside substantial funds for cash handouts for the marginalised, and almost 50 per cent of that amount is expected to be disbursed in Punjab, we have decided to provide price subsidy to hedge the poorer families against the rising food prices,” the provincial finance minister Tanvir Ashraf Kaira explained at the post-budget press conference last week.

Another factor that has ostensibly led the government to decide against cash handouts is the failure of a similar scheme – a sum of Rs4 billion was set aside for providing cash subsidy to the 642,000 poorest of the poor families – given in the current year’s budget. The scheme was blatantly used by the previous government as a means to create its goodwill among the voters ahead of the general elections.

The rest of the funds (amounting to Rs4 billion) from the relief package for the next year have been set aside for subsidising public transport in six major cities, tractors for small farmers under the Green Tractor Scheme and electricity bills of agricultural tube-wells, and the write-off of housing and agricultural loans of poor widows, and establishment of dialysis centres for poor kidney patients.

Apart from this, the government also proposes as part of its pro-poor expenditure to start a free, air-conditioned bus service in seven major cities for facilitating the needy students, launch a low-cost housing scheme for the poor with a sum of Rs1 billion, and lease 60000 acres of state land to the landless, educated farmers on lease for increasing production of vegetables and bringing down their prices. Besides, a sum of Rs2 billion has been set aside to improve the living conditions in the katchi abadis.

One significant decision made by the PMLN-PPP coalition pertains to reducing the province’s reliance on foreign loans – even if these came at a low cost – obtained from the multilateral donors for budgetary support. The provincial government has estimated to receive just below Rs24 billion in budgetary support next year from the multilateral institutions, down by Rs15.771 billion from the budgeted amount of Rs39.747 billion and Rs29.5 billion from actual receipts for the current year. In addition, the provincial government would also get Rs11 billion in project-based foreign assistance, up by just above Rs3 billion from the budgetary estimates and by Rs2.583 billion from actual receipts for the outgoing year.

“The decision to cut the size of foreign assistance has been taken in order to control the rising debt stock of the province and increase mobilization of our own tax and non-tax resources,” a senior provincial finance department official told Dawn. “It is important to judge when to take loans and when to refuse them to keep the debt stock at a sustainable level,” he said.

Both the budgetary support assistance and project-based loans – obtained at discounted, low rates – are used to retire expensive federal cash development loans (CDL) and finance development. As a consequence of the liberal policy adopted by the previous government to obtain both budgetary support and project-based assistance, the foreign exchange debt stock has grown to over Rs253 billion (exchange rate $1=Rs62.50). This compares with domestic, rupee debt of just above Rs51 billion.

The official defended the previous government’s liberal policy of taking loans from the multilateral agencies, saying a large part of the foreign assistance was either used to prematurely retire the expensive federal loans or support development in the province. “Today we have reached a point where it is economically more prudent to refuse the foreign loans and raise our own resources for supporting our current and development expenditure.

A provincial planning and development department official said most foreign assistance came to support the governance reforms in the province. “Some may argue that we did not need to obtain foreign assistance to fund our development or bring down our expensive federal debt stock. But we pursued the policy of getting foreign assistance not just because we needed cheaper funds. We got loans from multilateral donors because their collaboration was necessary for sustaining the governance reforms carried out over the last five years. Had we not formed a partnership with the Asian Development Bank (ADB) and the World Bank or the DFID of the UK, it would not have been possible to carry on the reforms in the province due to opposition from the politicians as well as civil bureaucracy both,” he maintained.

However, what is intriguing many is the government’s decision to enhance the size of the development spending for the next year to Rs160 billion, up by 6.6 per cent from the budgetary estimates of Rs150 billion and by over 31 per cent from the revised estimates of just above Rs122 billion for the outgoing year.

Though the government has enhanced funding for its core development programme – social sector, infrastructure development, production sector, services sector and others – to Rs119 billion, up by almost 24 per cent from the current year’s original estimates of Rs96 billion and 34.5 per cent from the revised estimates in accordance with the provincial Medium Term Development Framework (MTDF), it has not increased the share of the district/TMA development programme from the outgoing year’s Rs12 billion. The district/TMA share has actually gone down by Rs2 billion or around 14 per cent from the revised and actual transfers of Rs14 billion to them.

Special infrastructure programme – Lahore Ring Road (Rs20 billion), Sialkot-Lahore Motorway (Rs2 billion) and Lahore Rapid Mass Transit System (Rs7 billion) – has been allocated Rs29 billion, down by Rs11 billion from the original estimates of Rs40 billion and up by Rs7.775 billion from the revised estimates of Rs21.250 billion for the outgoing year. The motorway and rapid mass transit system projects have been allocated Rs9 billion and clear cut targets for the two schemes have been outlined in the development programme in spite of the fact that the minister has stated that the government intended to review them.

Interestingly, the provincial government will finance the increased development spending from the revenue surplus of just below Rs133 billion and savings from the foreign budgetary support loans (or the capital account surplus) of Rs13.593 billion and foreign project-based loans of Rs11 billion. It is surprising to note that a government, which is working to reduce the burden of foreign exchange loans is actually financing over 15 per cent of its annual development programme from that money. Or is it not?