Punjab has been facing numerous development challenges on account of its limited financial resources required for fostering economic growth in the province, improving the quality of public service delivery and spending on the development of social and economic infrastructure. The economic slowdown and a significant drop in its revenue incomes over the last couple of years, as well as the recent Covid-19 health crisis, has enlarged the magnitude of these development challenges and created a stronger demand for a new public finance management (PFM) reform paradigm.

This in turn has led the keepers of the provincial exchequer and development planners to formulate a PFM Reform Strategy (PFM-RS) to undertake a complex and time-consuming reforms agenda. The key role of the PFM-RS, according to the provincial budget documents for the present financial year, will be to set out the longer-term vision for the PFM system and to clearly define the priorities and sequencing of the reform process.

The strategy establishes a long-term framework for the PFM reform, distinguishing between the short- and medium-term (2020-2023) and the long term (2024-2030) interventions to clearly identify the most urgent areas in which reforms should be initiated immediately from those where reforms could or should be undertaken in the medium to longer term.

An effective public finance management system brings long-lasting benefits in the shape of inclusive institutions and a stronger economy

The key objectives of the reforms strategy and reforms programme being undertaken in the province are to bolster provincial revenue mobilisation for better public service delivery, improve the quality of budgeting, strengthen the forecast of the macro-fiscal impact of pandemics to mitigate disaster risks, execute the budgets as planned and manage fiscal risks in a better manner.

Moreover, it aims at improving the management of funds in local governments, reforming legal and regulatory framework, enhancing capacity for better public finance management, using IT for effective PFM and revenue mobilisation, and, last but not the least, improve development budget systems.

Last year, the Punjab government had undertaken a public expenditure and financial accountability (PEFA) assessment with the assistance from the World Bank and the UK Department of International Development (DFID). The exercise was meant to help the provincial government identify gaps in its public finance management system.

The PFM weaknesses highlighted by the PEFA assessment pertained to policy-based budgeting, the unreliability of the provincial budgets owing to inaccurate revenue forecasting, low predictability in the execution of the budgets, ineffective accountability mechanisms and fiscal risks emanating from operations outside the financial reports.

The PEFA findings were further supplemented with a gap analysis carried out by the Sub-National Governance programme later on and led to the formulation of the provincial PFM Reform Strategy (PFM-RS) 2020, which provides a set of actions to plug the gaps in PFM in Punjab. The provincial finance department has partnered with the World Bank to develop a $330 million programme for targeted reforms in different provincial departments and agencies over the next five years.

The Program Development Objective (PDO), according to the budget documents for the present financial year, is “to improve the collection of own-source revenue, management of public resources and disaster risk, and promotion of the use of technology in the delivery of government services in Punjab”.

The programme design is informed by the province’s revenue potential and tax administration analyses and aims to 1) strengthen budget formulation and fiscal risk mitigation, 2) promote technology for continuity, efficiency and transparency of the government services, and 3) increased revenue mobilisation by strengthening tax administration.

The programme is expected to be launched later this year. A part of the assistance from the World Bank under the programme – $30 million – is expected to be spent on interventions to support implementing agencies that require input-based specialised expertise and capacity building.

It will finance automation of the business processes and provide technical assistance to both the provincial finance department and the planning and development (P&D) board for activities/diagnostics including the use of big data in tax administration and tax audit techniques, revenue generation from public properties, business process mapping and simplification to enable automation in tax administration, review of the legal framework and technical requirements for public financial management, especially relating to performance-based budgeting and e-procurement etc. The government believes that this ‘deep-seated reform will address the systematic deficiencies in the most result-oriented manner’.

Along with that, the government is establishing a PFM Unit (PFMU) within the finance department to undertake budget reforms, revenue mobilisation reforms and e-procurement. The PFMU will be working to develop, implement and monitor PFM reforms, undertake analytical research on taxation policy and administration, redesign and implement a system for e-procurement, and effectively communicate and highlight Punjab government’s PFM reforms.

The unit will in effect support the provincial government transformation of its PFM system by facilitating simpler and productive business processes and adoption of IT systems as tools for transparent and efficient service delivery. This, in turn, is expected to contribute towards the desired outcomes of improved management of public resources and help increase own-source revenue collection for Punjab.

“An effective PFM system brings long-lasting benefits in the shape of inclusive institutions and a stronger economy, the two requisites for a more equal and less poor society,” commented a financial consultant working with the provincial government on its PFM reforms agenda.

Published in Dawn, The Business and Finance Weekly, September 14th, 2020