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The 18th Amendment to the Constitution has transferred more functions to the Provincial Governments and empowered them more. The 7th NFC Award gave the major share, 57.5 percent, of the divisible pool to the Provincial Governments. Therefore, it is not surprising that in the last five years, over 56 percent of the national development spending has been undertaken by the provincial governments.

Ideally, development spending of a particular Provincial Government should be based on knowledge of the key constraints to growth and the identification of sectors within the regional economy which are likely to yield the highest returns to public investment. As such, regional planning must be based on precise knowledge of the sectoral composition of the provincial economy and the growth in different sectors. Planning has been facilitated at the national level by the availability of the annual estimates of the size and growth of the GDP and the distribution of the value added among the different economic sectors.

This should also have been the case at the provincial level with estimates available of the size, growth, and sectoral composition of the Gross Regional Product of a particular province. Unfortunately, no attempt has been made by the Pakistan Bureau of Statistics, along with the provincial bureaus, to produce these estimates. Consequently, the process of effective regional planning has been rendered very difficult and reliance has had to be placed on informed guess estimates.

The professions of economists and statisticians in the research community have also had difficulty in making these estimates due to the limitations of regionally disaggregated data. The first major attempt to estimate the provincial GRPs was made by Dr Kaiser Bengali in the early 90s and the estimates were published by the Social Policy and Development Centre.

India has had a long-standing tradition of the official publication of annual estimates of the GRPs of the 29 states. These estimates reveal wide variations in regional growth rates. For example, the highest growth rate of a state was 9 percent while the lowest growth rate was below 4 percent in 2018-19.

The objective of this article and the next article is to present estimates of the Gross Regional Products, the growth and sectoral composition of the economies of the four provinces of Pakistan. This has been the product of intensive research spread over more than one year by the faculty, and post-graduate students at the Economics Department of the Beaconhouse National University in Lahore.

A very diverse set of data sources have been used to quantify allocations of sectoral output at the national level among the four provincial economies. These include surveys by the PBS which give province-wise estimates of key indicators, like the Household Integrated Economic Survey, Labor Force Survey, Living and Social Measurement Survey, etc. Further, specialized publications have been used of Ministries and Autonomous Agencies like the provincial Development Statistics, Agricultural Statistics Yearbook, Energy Yearbook, Banking Statistics, etc.

The latest year of estimation of GRP is 2018-19, which is the last normal year prior to the Covid-19 attack. Table 1 gives the size of the four provincial economies in 2018-19. Estimates have been made of the domestic output value-added in each of the eighteen economic sectors and of the net inflow of remittances from abroad. Aggregation of the former gives the Gross Regional Product (GRP) and the latter yields the Gross Regional Income (GRI) after addition of the GRP.

The national GDP at current factor cost was Rs 35,897 billion in 2018-19. The respective GRPs are as follows:

(i) The economy of Punjab had a GRP of Rs 18,594 billion, equivalent to 51.8 percent of the national value-added in all sectors combined.

(ii) The GRP of Sindh was Rs 11,128 billion with a share of 31 percent of the GDP.

(iii) Khyber Pakhtunkhwa had a GRP of Rs 4,451 billion, representing a share of 12.4 percent of the national economy.

(iv) Balochistan, the smallest province in terms of population, had a GRP of Rs 1,724 billion and a share of 4.8 percent of the national economy.

Table 1 also gives estimates of the GRI of each province in 2018-19. The home remittances primarily flow into Punjab and Khyber-Pakhtunkhwa. As such, the share of Punjab rises from 51.8 percent to 55.4 percent, while that of Khyber-Pakhtunkhwa increases from 12.4 percent to 13.7 percent. Consequently, the share of Sindh falls from 31 percent of 26.5 percent and that of Balochistan from 4.8 percent to 4.4 percent.

The per capita income varies significantly among the provinces. It is the highest in Sindh, at over 12 percent above the national average. Punjab and Khyber-Pakhtunkhwa come next with per capita income close to the national average and 9 percent below respectively. Balochistan is relative underdeveloped, with a per capita income 28 percent lower than the natural average.

There have been significant changes in the shares of the Provincial economies in the national GDP at factor cost between 2007-08 and 2018-19. The biggest increase in share is observed in the case of Khyber-Pakhtunkhwa from 10.8 percent to 12.4 percent, primarily because of greater buoyancy of the services sectors of this economy. There has been a corresponding fall in the share of Punjab’s economy from 53.4 percent in 2007-08 to 51.8 percent in 2018-19, due to the higher share of agriculture in this province and the relatively slow growth of this sector. However, the big inflow of remittances into Punjab has implied a smaller decline in the share of the GNI. The shares of Sindh and Balochistan have remained largely unchanged.

Based on the size of the regional economies, the level of spending by the provincial governments can be quantified. The provincial expenditure to GRP ratio was the highest in 2018-19 of Balochistan at above 12 percent of the GRP and the lowest for Sindh at close to 6 percent. The corresponding magnitudes for Punjab and Khyber Pakhtunkhwa are 7 percent and 10 percent respectively.

Clearly, the process of fiscal equalization built into the horizontal sharing formula by the 7th NFC has worked and the two smaller provinces have been transferred revenues in such a way that their budgets are relatively larger than the two bigger provinces in relation to the size of the respective economies.

The subsequent article will focus on the structure of the four provincial economies in terms of the share of different economic sectors in their respective GRPs.

(The writer is Professor Emeritus at BNU and former Federal Minister)

===================================================================================================
TABLE 1
===================================================================================================
SIZE OF THE PROVINCIAL ECONOMIES - 2018-19
===================================================================================================
                                                                  (Rs in Billion at Current Prices)
===================================================================================================
                    Gross Regional      Share        Gross       Share    Per Capita     Percentage
                          Product*        (%)     Regional         (%)        Income    Deviation**
                             (GRP)                  Income                      (Rs)
                                                     (GRI)
===================================================================================================
Punjab                      18,594       51.8       22,512        55.4       199,495            0.5
Sindh                       11,128       31.0       10,789        26.5       222,752           12.2
Khyber-Pakhtunkhwa           4,451       12.4        5,552        13.7       179,993           -9.3
Balochistan                  1,724        4.8        1,783         4.4       141,881          -28.5
Pakistan                    35,897      100.0       40,636       100.0       198,565
===================================================================================================
*At factor cost **Deviation from national per capita income

Copyright Business Recorder, 2021

Dr Hafiz A Pasha

The writer is Professor Emeritus at BNU and former Federal Minister

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