ISLAMABAD:
The federal government has convened a meeting of the four provincial finance ministers amidst concerns over the inability of the provinces to spend the additional federal funds allocated to them under the landmark National Finance Commission Award 2010.
Federal Finance Minister Abdul Hafeez Sheikh has called the first biannual meeting of the federal and provincial finance chiefs to discuss the transfer of resources under the 2010 arrangement that dramatically expanded the amount of money and revenue collection rights made available to the provinces. In recent months, the provinces have been unable to spend the entirety of their increased federal allocations and have not been able to generate additional revenue, despite having been granted the authority to do so over a year ago.
Sheikh has voiced concern over the state of provincial financial affairs. Islamabad has transferred Rs418.6 billion to the provinces as their share of federal revenues from July through December 2010. Almost one-fourth of those transfers remained unutilised, highlighting the provinces’ capacity constraints in absorbing more resources.
The transfers are slightly over 40 per cent of the total estimated provincial share of Rs 1,040 billion for the fiscal year ending June 30, 2011. Transfers in the first half of the fiscal year were higher than the same period in the previous year by Rs134 billion. However, of that money, Rs100 billion remains unspent.
The inability of provincial governments was a large factor in keeping the fiscal deficit for the first half of the year to come in at 2.9 per cent of gross domestic product (GDP), a measure of the size of the total economy. Had it not been for the unintended surplus at the provincial levels, the national fiscal deficit would have been 3.5 per cent of GDP.
The provincial governments’ own revenue generation remained very low. Out of total revenues of Rs517.4 billion for the first six months, the four provincial governments collected only Rs52 billion through their own efforts. The source of over 80 per cent provincial income was their share from the federal taxes.
Federal finance ministry officials say that by the end of the current fiscal year, the government may not be able to transfer the entire Rs1,040 billion it owes the provinces due to an anticipated shortfall in federal tax collection. The provincial shares had been worked out on the assumption that the Rs1,667 billion tax collection target would be achieved. The finance ministry’s latest estimates indicate that without levying new taxes, collection may end up to Rs1,500 billion – a dip of Rs 116 billion.
The NFC Order 2010 bounds the Centre to hand over 56 per cent of the federal divisible pool to the provincial governments during the first year of award – fiscal year 2011. For the remaining four years of the award the provincial share will go up to 57.5 per cent of the divisible pool.
Among the provinces, Balochistan was the worst offender in terms of unutilised resources. Quetta failed to spend 46.6 per cent of its allocated federal funds. Punjab fared best, leaving only 7.9 per cent unspent, with Sindh failing to spend 10.1 per cent and Khyber-Pakhtunkhwa unable to utilise 37.2 per cent of its federal allocations.
Published in The Express Tribune, March 6th, 2011.
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