EDITORIAL: A Business Recorder exclusive report has revealed that a plan prepared under the auspices of the Special Investment Facilitation Council (SIFC) - represented by senior military and civilian (federal as well as provincial) personnel to ensure synchronised implementation of policies - to scrap 137 non-starter development projects, transfer 49 projects with up to 20 percent progress to provinces and to complete 20 percent with over 80 percent completion in the current year.
The objective of this plan is two-fold: (i) to create fiscal space and thereby lower the pressure by the International Monetary Fund (IMF) during the ongoing first review of the Stand-By Arrangement to widen the tax net to include those influential groups which are out of the tax net (real estate sector, builders, rich landlords) and to slash current as opposed to development expenditure, which has a direct impact on the growth rate; and (ii) thirteen years after the passage of the 18th Amendment and the tenth National Finance Commission award, both in 2010, no province has yet strengthened its capacity to take over the devolved subjects (including education and health) in spite of the rise in share of the provinces in the divisible pool.
The arrangement that was conceived for an interim period continues to this day; notably, the federal budget requires provinces to generate a surplus — an account grossly overstated by the federal finance ministry in the budget each year.
In 2022-23, the budgeted provincial surplus was 750 billion rupees with only 459 billion rupees realized while in the current year the target is 650 billion rupees, which is an unrealistic figure, given the continuing economic impasse.
Be that as it may, the SIFC’s decision for provinces to contribute to development projects is sound from an economic as well as constitutional perspective; however, it appears to be unrealistic not only from a historical perspective but also from a political perspective.
Historically, it is relevant to note that Gen Ziaul Haq during his tenure as the country’s president and the chief of army staff was unable to push through the construction of Kalabagh dam as he was unable to convince the smaller provinces that it was in their as well as national interest to construct the dam.
It may also be recalled that during 2008-13 with a PPP (Pakistan People’s Party) government at the Centre and in Sindh the then President Asif Ali Zardari failed to successfully persuade the Sindh government to allow the Federal Board of Revenue to collect sales tax on services, a provincial subject as per the constitution, as it was considered to be against the interests of Sindh.
The reason: allowing FBR to collect the tax for a 2 percent fee would have implied the total amount collected from Sindh as sales tax on services to be added to the divisible pool that would then be divided as per the NFC formula.
On 6 June 2011, the Sindh assembly passed the Sindh Sales Tax on Services Act — a passage that was subsequently followed by the other three provinces and today it is a source of the highest revenue generation from own resources (other than from the divisible pool) of all provinces.
Given that the federal and all provincial governments have a caretaker setup today, to propose a measure that seeks to transfer responsibility for disbursing funds for development projects from the Centre to the provinces, with obvious political overtones, should have been avoided.
What is concerning is the report that even the provincial caretakers are resisting any such move and, based on past history, one can project this resistance manifold as and when an elected government is in place after the scheduled elections on 8 February.
To further complicate matters, the SIFC plan is for the Centre’s Public Sector Development Programme (PSDP), no doubt reflecting Shehbaz Sharif-led government’s pre-election agenda which, as during previous IMF programmes, would have been mercilessly slashed as and when the budget deficit target was missed.
Thus a better and a more realistic plan would be to slash the Centre’s PSDP and at the same time slash current expenditure through voluntary sacrifices by all the major recipients for the current year and to begin implementing pension reforms to include employee contributions — measures that would go a long way in ending the ongoing economic impasse as well as create some leverage with the IMF during the ongoing negotiations.
Copyright Business Recorder, 2023