Provincial governments are unlikely to meet the commitment made by Finance Minister Ishaq Dar to the International Monetary Fund (IMF) that they will generate a provincial surplus to help federal government achieve the budget surplus. Sadeq Chandio from budget and expenditure wing of Sindh finance department said that there was a significant increase in provincial government expenditure as a result of more than budgeted spending on law and order situation in the province.
He said the provincial government spending on police training as well as procurement on weapons has increased and the province may be unable to create a budget surplus. However, he said a cell has been established for the purpose but he was not aware of the latest situation.
Senior official of finance departments of other provinces on condition of anonymity stated said it is highly unlikely for the provinces to give budget surpluses as different political parties are in power in the provinces and with next general elections approaching, provinces are going to increase their development spending on election-specific projects. They added that if ruling party's government in the center and province are on a spending spree from day one on projects like Metro and Orange trains to attract voters, how can Ishaq Dar expect other provinces not to undertake such projects when general elections are approaching?
The officials of provincial finance departments further stated that timely release of their share from divisible pool remained a major issue. The development activities would speed up from the current fiscal year onward if provinces get timely releases of their respective shares of the divisible pool and to expect provincial surpluses or for provinces to curtail spending would be nothing but a wish of federal finance minister.
Additionally, they said that the federal government's failure to achieve budgeted tax collection would lower transfer of funds to the provinces from divisible pool. As a result, officials of provincial finance division argued, a budget surplus is almost impossible.
Sources in finance ministry, however, sounded optimistic and stated that provincial surplus would not be an issue for the federal government. As provinces always complain that finance ministry was not releasing their shares from divisible pool, the Ministry can show their budget surpluses through delayed transfers of their shares from divisible pool for the last month or so. The federal government has also offered incentives of treasury rate to the provinces for generating budget surpluses, source in finance ministry on condition of anonymity added.
The Memorandum of Economic and Financial Policies (MEFEP) agreed between the IMF and the government at the conclusion of ninth review of Extended Fund Facility (EFF) specifies that an agreement has been reached with provincial finance secretaries in writing that they would increase provincial budget surpluses consistent with EFF for achieving fiscal deficit in the current fiscal year and beyond. The total provincial spending will be maintained at 6.5 percent of GDP in current fiscal year with total provincial own tax and non tax revenues standing at 1.1 percent of GDP, added ministry of finance. The federal government has estimated provincial surpluses of Rs 297 billion, almost one per cent of the GDP, to achieve the budgeted fiscal deficit of 4.3 percent for the current fiscal year.
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