Unforeseen flood, dengue expenditures: provinces unlikely to create Rs 125 billion projected budget surplus

Provinces are unlikely to create projected budget surplus of Rs 125 billion during fiscal year 2011-12 owing to unforeseen expenditure following flood and dengue as well as possible decline in revenue collection by the Federal Board of Revenue (FBR), official sources said.
They said that 2011-12 FBR revenue collection target of Rs 1952 billion is increasingly being viewed as unrealistic by the high-ups of Finance Ministry and they are considering reducing the target by Rs 60 to Rs 70 billion, which would imply less transfer to the provinces. An official of the Finance Ministry stated that Rs 38 billion lower than budgeted collections last year implies that the 22 percent revenue collection increase envisaged in budget for 2011-12 would now be 25 percent.
He stated that provincial governments are not legally or constitutionally bound to show surplus budget to the federal government but there is mutual understanding between the centre and provinces that provinces would have a 0.6 percent of GDP surplus budget for management of fiscal framework of the country.
Finance Secretary of Punjab, Tariq Bajwa said that at the end of the day FBRs revenue collection would determine the provincial surplus and inability of the tax machinery to achieve projected revenue collection target of Rs 1952 billion would ultimately lead to the inability of provincial governments to show a surplus.
Finance Secretary Punjab told Business Recorder that Rs 44 billion budget surplus was given by the provincial government last year but whether the provincial government would be able to create budget surplus this year would only be known on June 30, 2012. He added that nothing can be predicted as of today and stated that the provincial government would have to adjust 20 percent of the total budget to create budget surplus because 80 percent budget of the provincial governments is fixed and can not be slashed.
In reply to a question he expressed hope that "dengue" problem would not affect the core projects of the provincial government and said there is always space for reappropriation which, if necessary, would be made in light of the evolving problem. Another Provincial Finance Secretary said that provincial budgets rely heavily on resources transferred by the FBR, and any decline in transfer of resources automatically undermines the ability of provincial government to meet their expenditures - especially untoward expenditure for example dengue and flood relief activities. He categorically stated that the Rs 125 billion provincial budget surplus envisaged in the federal budget is nothing but a pipedream.
An official of the Finance Ministry said that only Punjab and AJK governments have taken overdraft of Rs 6.91 billion (the limit being Rs 37.2 billion) and Rs 1.74 billion (the limit being Rs 2.71 billion) respectively. Remaining provinces are in credit with the State Bank of Pakistan (SBP) with Sindh province at Rs 29.94 billion, Khyber Pakhtunkhwah at Rs 18.37 billion and Balochistan governments at Rs 13.26 billion.
The overdraft limit of Sindh, Khyber Pakhtoonkhwa and Balochistan governments is Rs 15 billion, Rs 10.1 billion and Rs 7.1 billion respectively for the fiscal year 2011-12. Another official said that either the government would slash Public Sector Development Program (PSDP) or would resort to monetisation of fiscal deficit, and warned that both situations are dangerous as these would further derail economic activities and spike inflation.