In their annual display of mistrust, the provinces have managed to post a joint-deficit of Rs5.59 billion against a joint-surplus of Rs125 billion budgeted by the Centre for the fiscal year ended July 2012.
Recall that a similar story happened last year, when the federal government said it expected a joint provincial surplus of Rs167 billion for FY11, only to find out that the provinces posted a combined deficit of Rs70 billion.
Quite surprisingly, however, the provinces managed to post a combined surplus of Rs119.8 billion for the running year, according to revised budget estimates presented by the federal government earlier this month.
"It is an accounting mess; the conversion of Rs70 billion deficit into a surplus of Rs119 billion is something that can be verified satisfactorily even in the presence of detailed budget documents," says Mohammad Sabir, Principal Economist at the Social Policy and Development Centre.
The same perhaps may be expected for FY12, but as the situation stands now, the federal government has missed its next years budget deficit target by 61 basis points - even before the start of the fiscal year.
The problem - according to former debt manager and Dean NUST, Dr Ashfaque Hasan - lies in the famed 7th NFC Award. "The NFC award has sown the seeds of perpetual macroeconomic destabilisation," he told BR Research over the phone.
And thats because, as Dr Aisha Ghaus-Pasha of the Institute of Public Policy says, the federal government can not legitimately expect a budget surplus. "There is no legal binding or a constitutional provision under which the federal government can impose a budget surplus upon the provinces," she said.
This means that as the law stands now, the fingers should be pointed at the federal government for making unrealistic assumptions about the annual fiscal balances of the provinces. And in order to avoid numerical jugglery in future, perhaps a better solution is to impose a binding structure upon the provinces.
"The provinces and the centre should sit together, and arrive at a binding solution, which then should be approved by the Council of Common Interests or the National Economic Council," says Hasan.
Given the general mistrust between the centre and provinces, it may take quite some time for both sides to sit down and arrive at an amicable long term solution.
This means that till the time they sit together, fiscal slippages are bound to occur as soon as the provinces announce their budgets. That in turn will stoke inflation, possibly crowd-out the private sector, and, as has been the case in recent years, even result in lower development spending.
In other words the impact of provincial deficits (although it may be an apparent fault of the centre to assume unrealistically) affects the whole of the country. The apathy of provinces in this context, therefore, makes them as guilty as the federal government.