Space for supplementary grants: Budget hints at understatement

Govt allocates Rs4,000 to pay rewards to provinces for saving Rs339b to meet budget deficit.

ISLAMABAD: The federal government has not allocated funds in the new budget to pay rewards to the provinces for saving Rs339 billion – a move that clearly indicates that the finance ministry has understated the next fiscal year’s spending bill.

In order to achieve the budget deficit target of 3.8% of GDP or Rs1.276 trillion for 2016-17, the government has budgeted that the provinces will deliver a combined surplus of Rs339 billion. According to a decision of the Council of Common Interests (CCI), the centre will pay an interest rate equal to three-month treasury papers to the provinces as a reward for saving the funds.

Budget books, however, show that the government has allocated a meager sum of Rs4,000 for paying cash rewards, which is an indication that the accounts have been created but the rewards will be given by issuing supplementary grants.



It is not the only case where the federal government has understated the spending bill for the next fiscal year. Pay, pensions and subsidies allocations are less than the actual requirements, showed the books.

Finance ministry spokesman Dr Shujat Ali was not available for comments.

The National Assembly passed the Rs4.4 trillion spending bill for next fiscal year on Wednesday but the actual spending is likely to exceed the indicated threshold due to understatement of expenses under many heads.

One of the obvious reasons for understating the budget is to show the International Monetary Fund (IMF) that the country is adhering to fiscal discipline. Successive governments have been misusing the constitutional provision of issuing supplementary budgets, which led to calls from the Supreme Court and IMF to withdraw this facility.

For the outgoing fiscal year, the government had also not allocated the requisite funds for paying cash rewards to the provinces. However, the finance ministry paid Rs4 billion by issuing supplementary grants, according to the budget books.

Out of Rs4 billion, the biggest share of Rs2 billion of the federal award went to Balochistan for posting surplus to keep the overall budget deficit within the limits prescribed by IMF for the outgoing fiscal year. The provincial government preferred to save money instead of spending in most neglected areas.

A recent official poverty report revealed that four out of the five poorest districts of the country are in Balochistan where 90% or more population lives in acute poverty.

Punjab will get Rs1.7 billion for saving money from its outgoing fiscal year’s budget. Khyber-Pakhtunkhwa would get Rs1.2 billion and Sindh Rs836.6 million.

Critics, however, argue that rewards linked with savings are discouraging the provinces from spending on development schemes. They say that it also goes against the principle of provincial surplus – a sum that a province saves and helps to reduce the overall national deficit. Paying interest rate on savings will convert it into borrowings, they added.

For the outgoing fiscal year, the four provinces’ estimated development budget was Rs814 billion. However, not a single provincial government could spend the entire amount, resulting into huge savings.

Published in The Express Tribune, June 24^th, 2016.