Reflections on provincial budgets FY27—II

Moreover, a statement in Punjab’s ‘white paper’ that ‘Strategic investments continue to be prioritised in sectors critical to economic growth and social progress, including human development, infrastructure, climate resilience, urban services, and social protection.

The focus has shifted from the scale of expenditure alone to the quality, effectiveness, and sustainability of outcomes’ does not indicate specific orientation of governance, and incentive structures, including allocating adequate level of finances, and ways in which bank will be engaged in terms of fostering partnerships with them in ways that incentivize borrowing to agriculture sector, and industry – for instance, especially for small-and-medium enterprise level – in particular, overall, in high priority sectors in terms of economic, environmental, and epidemiological aspects climate change, energy sustainability, education, and health, to meet concrete targets in these directions.

READ MORE: Reflections on provincial budgets FY27—I

Overall, the ‘white papers’ of provinces lack clarity on whether provincial governments see a limited role of government, that is, does it prescribe to the neoliberal model? Moreover, they do not reflect whether the provincial governments have a learning curve with regard to the misgivings of the over-board austerity policies that have been pursued at the federal, and provincial levels, and whether the provincial governments understand that both neoliberal, and austerity policies have not lent any sustainability to macroeconomic stability and growth, and not helped enhance inclusivity and resilience, and, in turn, policy orientation needs to change in favour of a more balanced aggregate demand squeeze, and aggregate supply enhancement policies; where the latter focus is all the more important due to rising level of aggregate supply shocks over the years due to fast-unfolding of climate change crisis, and elevated level of conflict.

Here, it needs to be mentioned that neither the federal nor provincial budgets—at least in terms of reflecting this in their budget proposals—pay special attention to the ongoing Middle East (ME) conflict. There are no specific changes with regard to expenditure and revenue planning to better prepare for conflict situations.

Moreover, the statement that ‘This budget reflects the Government of Punjab’s commitment to the principles of fiscal federalism and its contribution towards meeting the country’s strategic national requirements’ does not reflect any specific discussion, especially from the level of the finance minister, as to what discussion has gone on between the federal government and the province with regard to, for instance, education, health, and social protection, including that on BISP – whose budgetary estimate in federal budget for FY27 stood at Rs.844.8 billion – whereby expenditures are better rationalized in the spirit of 18th Constitutional Amendment, and which would likely entail lesser need for provision of provincial surplus from all provinces to the tune of around Rs. 1.8 trillion.

Here, it needs to be mentioned that the author in his same BR published article has pointed out ‘…in an overall budgetary estimate of current expenditure for the ongoing fiscal year at Rs.17.5 trillion, a little more than Rs.1 trillion goes to these three concerns – ‘Education Affairs and Services’ allocated at Rs.117.1 billion, ‘Health Affairs & Services’ at Rs.37.4 billion, and ‘Social Protection’ at Rs.867.0 billion; where this saving could mean less primary surplus target, and overall greater fiscal space for enhancing development spending – where PSDP from this saving in federal budget could in fact around doubled – along with lesser need for seeking provincial surplus, which has been budgeted at Rs.1.8 trillion!’

In the ‘white paper’ of the Sindh Government the underlying message is sadly much more celebratory than it perhaps should be, given an overall depressed economic growth, and rising level of inequality, and poverty in the country overall, in particular, during the last few years in the wake of over-board practice of austerity, and a general neoliberal approach to economic management. Hence, the claim ‘Over the past few years, Sindh has made remarkable progress in recovering from the devastating floods of 2022’ stands unsubstantiated in terms of mention of any broad indicators in the message.

Moreover, no specific governance, and incentive structures are highlighted through expenditure allocation, and revenue measures that in turn, reflect the claim ‘Our focus now is on accelerating development through strategic investments in infrastructure, agriculture, education, healthcare, and social protection.

We are committed to creating an enabling environment for investment, generating employment opportunities for our youth, and ensuring that the benefits of economic growth reach every region and segment of society. This budget reflects our vision of a prosperous, inclusive, and resilient Sindh.’ Here, there is no mention of specific proposals that may have been reached after discussion with the Centre with regard to improving fiscal federalism. In addition, specific proposals with regard to reaching an effective local government system, both in terms of responsibilities and financial allocations are also missing.

For instance, it would make sense for the Centre, and the federating units in terms of both policy in general, and also in terms of budget proposal with regard to taxation and expenditures, to learn from China where local governments play an important role in supporting and monitoring state-owned enterprises (SOEs), and in over-seeing infrastructural work, including contributing resources from off-budget sources in a quasi-fiscal way. For example, as adopted by China, local governments arrange part of the financing of SOEs through off-budget sources, and are responsible for paying it as far as possible, having, in turn, a stake in the operational aspects of its functioning with the benefit of a localized focus, while the Centre directs the overall policy and implementation. Hence, this underlines the high importance of having well-empowered, and effectively financed local governance system not only with regard to playing an important role in managing local SOEs, but to also oversee infrastructural development at the local level.

In this regard, once again, China’s experience of employing local government financing vehicles (LGFVs) can be a very useful example to learn from. Here, it needs to be indicated that LGFVs are entities, which are quasi-fiscal in nature. Among other benefits that a localized supervision brings, this also allows members of legislative assembly at the provincial level to focus on their primary role of policymaking, and play their role in holding accountable those who do not follow policies in the policy implementation domain through the effective functioning of the committee system in respective provincial legislative assemblies; not to mention improving local government functioning overall, and in the shape of their employment in terms of implementing LGFVs, will also likely enhance space for focussing all the more on policy formulation and in performing accountability function in a much more effective way at the level of Centre.

Looking at the ‘white paper’ of Khyber Pakhtunkhwa (KPK) province, relative to the messages/statements in ‘White Papers’ of other provinces, there are more specifics given with regard to the performance of the province in terms of tax collection, and in certain interventions; for example, with regard to disaster management, among others. The message in the ‘white paper’ lacks a wholesome vision for the provincial economy – and also for the Centre, given the political presence leading the province is different from all other three provincial governments, given they are in the opposition domain in the National Assembly – in terms of the extent of role of public sector, regulation, or overall whether economic policy is being pursued under neoliberal, or that the provincial government sees a greater role in co-creating markets, and in establishing a symbiotic relationship with the private sector in terms of safeguarding the interest of the demos through forging contracts; for instance, ask in return for support by government in any sector to private sector making tangible real sector investments, and not spend their profits in share buy-backs for example.

Moreover, it is not indicated in terms of specific incentive structures with regard to tax and expenditure proposals, and in terms of some appropriate level of detailed layout of outcomes-based budgeting, which reflected the effective level of focus the provincial government needed to provide to important challenges like climate change catastrophes, given the province hold high level of risk in this regard, and suffered considerably from flash flooding last year. Here, the message in the ‘White Paper’ does not reflect the needed ambition in terms of tax and expenditure proposals in this regard, in particular supporting alternate sources of energy and building stock piles of essential agricultural commodities for instance. In addition, there is no indication that the direction of taxation that the provincial government wishes to take to enhance the equitability aspect by indicating some sort of timeline to shift from consumption-based, regressive, indirect taxation to direct taxation.

Here, something that is lacking in the message in the ‘white paper’ of KPK, and which makes sense, given the majority members in power in KPK, unlike parties in power in other provinces, has a political base that is in opposition at the federal level, and in that regard, it would have made sense to have some comment on the economic philosophical underpinning of economic policy being followed at the level of Centre and which, in turn, also has consequences for the provinces, including KPK. Also, it would have made sense, as an extension to reflect on the monetary policy of State Bank of Pakistan, which also has a strong bearing on the fiscal space of the provinces. The reason for including this possible reflection, once again, has to do with greater say of Centre on SBP policy than provinces, especially KPK, whose power base is in opposition at the level of Centre.

Hence, the KPK government through the ‘white paper’ could perhaps indicate whether the over-board monetary, and fiscal austerity policies – that is high level of policy rate and targeting primary surplus which, in turn, squeeze aggregate demand, while little focus on enhancing aggregate supply, which otherwise has a significantly positive role in controlling inflation, and providing needed sustainability to overall macroeconomic stability, and economic growth – being adopted made sense in the light of unnecessarily high economic growth sacrifice these policies have entailed, for a very short-lived macroeconomic stability at best, while also enhancing interest payments related expenditure for both public and private sectors – at the level of both Centre, and federating units – and overall hurting revenue prospects due to lower investment and growth levels that austerity policies contribute towards. This, in turn, has likely hurt fiscal space of both the Centre and the federating units, both in terms of transfers from divisible pool, and own resources; not to mention the negative impact of low level of both investment and growth on inequality, poverty, social sector, and resilience-related expenditure.

(To be continued)

Copyright Business Recorder, 2026