NFC award implementation: Despite higher allocations, Punjab struggles to deliver

Provincial government unlikely to spend most of its budget allocations.

LAHORE:

Despite having received more money from the federal government as a result of the 7th National Finance Commission award, the Punjab government has not been able to enhance its services nor invest greater amounts into the development of the province at the close of the first full fiscal year under the new fiscal regime.

According to sources within the provincial government, while Punjab received just under Rs80 billion extra during the fiscal year ending June 30, 2011 under the NFC award, it spent approximately Rs54 billion in increasing the salaries of its employees which left little extra money for increasing the development budget.

Much of the rest was spent on relief efforts after the devastating floods during the summer of 2010. According to official estimates, the government’s actual development (as opposed to allocations) declined over fiscal year 2011.

Officials admit that the 50 per cent increase in salaries last year was announced by the federal government for its own employees and that Punjab was not legally obliged to follow suit. But officials say that given that many federal civil servants serve in senior positions in the provincial government alongside members of the Punjab civil service, the resulting discrepancy in compensation between officials serving in similar positions would be too great for it to be tolerated by Punjab’s own bureaucrats.

Of the total current expenditure of the Punjab government, nearly 72% is spent on salaries and pensions, according to officials familiar with the matter, leaving little room for cuts unless the government decides to downsize its own workforce, a politically unfeasible option in the current economic climate.

Punjab government officials claim that their non-salary expenses have already been stripped significantly and any further reductions would only reduce their capacity to serve the citizens of the province. One official pointed out that non-salary expenses had been frozen for the past two years, despite the fact that costs of utilities such as electricity had increased by an average of over 30% during that period.

“By not increasing our budgets to keep pace with rising costs, we are compromising our ability to deliver services and wasting development expenditures, which would then need to be serviced by the bureaucracy’s workforce,” said one Punjab government official who wished to remain anonymous.

Yet critics point out that the provincial government has almost never been able to spend the money it has been allocated for development. According to one official familiar with the matter, the Punjab government rarely spent more than 70% of the amount allocated in development spending by the federal government over the last decade.

For the upcoming fiscal year, the Punjab government has been allocated Rs200 billion for its development budget. Punjab finance ministry officials admit they will be unlikely to spend more than Rs140 billion owing to a lack of capacity, despite receiving the mandate to run 18 ministries under the devolution plan.

Sources say that one of the reasons for the Punjab government’s inability to spend its development allocation is that it is assigned in block grants, without specific projects being outlined at the outset of the fiscal year. This arrangement allows provincial legislators to request pet projects in their own constituencies without having to be part of the government’s over-arching development plan: the Punjab Vision 2020.

Published in The Express Tribune, June 1^st, 2011.