Punjab closes financial year with no money in the bank

The financial year ending on June 30 has been particularly bad for the Punjab government.


Anwer Sumra June 23, 2010

The financial year ending on June 30 has been particularly bad for the Punjab government which constantly availed the overdraft facility to run its official business.

The provincial government on average needs about Rs32 billion per month to meet its current and development expenditures, of which Rs26 billion go toward the former (salaries, pension and operating expenditures, and so on) and Rs6 billion toward the latter.

Due to poor revenue collection, coupled with questionable policies, the government could not meet these expenses without borrowing and had to twice stop payments for development work carried out under various departments. The amount of outstanding development bills is Rs35 billion with contractors reluctant to continue till dues are cleared, a senior official of the government told The Express Tribune on the condition of anonymity.

The outstanding debt of the provincial government stands at Rs485.706 billion. This includes Rs94.92 billion domestic and Rs390.786 billion foreign debt, the budget document says.

Punjab had earmarked Rs175 billion for the annual development programme for the year 2009-2010.

This was to pay for the completion and initiation of more than 2000 development schemes. Meanwhile, the non-development budget was calculated at Rs315 billion.

According to the finance department’s document, the department had released Rs134 billion for development schemes. Of this amount, Rs110 billion (approximately 60 percent) had been utilised till the end May, Finance Minister Tanveer Asharf Kaira told the Punjab Assembly during the budget session.

And with seven more days to go till the end of the financial year, the overdraft stands at Rs21 billion while the government had to pay Rs18 billion as interest on loans worth Rs148 billion during current financial year.

Poor revenue collection

The Punjab government had fixed the revenue collection target at Rs87 billion against which it could only collect around Rs70 billion till the end of the third quarter and is looking at a shortfall of Rs10 billion by June 30.

Meanwhile, Punjab’s share from the divisible pool, the money it was to be paid under the National Finance Commission Award, was calculated at Rs321 billion. However, owing to poor collection by the Federal Board of Revenue, tentatively only Rs315 billion were paid.

Power crisis was the major factor in poor revenue collection from indigenous resources as the economic growth rate was reported at three per cent instead of seven to eight per cent. The poor security situation in the province was another cause of revenue shortfall as business was negatively affected.

Spending

The Punjab government released Rs27 billion to subsidise various pro-poor packages in the sectors of food, agriculture, transport and education and had to transfer Rs6 billion to capitalise Punjab Pension Fund under a commitment to the Asian Development Bank, said an official of the government.

However, the Food Stamp Programme was shut down only two months after initiation due to scarcity of funds.

Moreover, the government allocated Rs6 billion as endowment fund for outstanding students.

And to pay advance salaries to its employees on the two Eids, the government had to avail the overdraft facility of Rs17 billion and Rs12 billion.

By the end of the first quarter of the financial year, the overdraft liability of the government had reached Rs83 billion.

The overdraft position improved in October when the federal government allowed the provincial government to convert overdraft worth Rs50.9 billion into a loan to be paid within four to five years. This provided some breathing space to the government.

Taking note of the situation, the State Bank of Pakistan fixed the government’s overdraft limit at Rs26.9 billion.

In March, the government faced Rs20 billion in overdraft, half of which was paid when it received Rs10 billion in hydel profit arrears from the federal government.

In the current year the Punjab government gave Rs25 million to ruling party parliamentarians for development schemes, Rs15 million less compared to 2008-2009. The cut was owing to the financial crisis, an official said.

Wheat procurement

The Punjab government also obtained loans worth Rs148 billion from commercial banks at 16 per cent interest rate to procure wheat during 2009. The aim was to procure the wheat directly from farmers at the price of Rs950 and remove the middle men.

However, it ended up buying more wheat than it needed, 5.8 million metric tons against the requirement of 3.2 to 3.5 million metric tons.

Prime Minister Yousaf Raza Gilani, at Chief Minister Shahbaz Sharif’s request, declared 2.5 million metric tons as “strategic reserves” in February and directed the Punjab government to shift Rs60 billion loans into the federal government’s account.

Meanwhile, this year too, the Punjab government took out a loan of Rs100 billion from commercial banks to procure 5 million metric tons of wheat against the assigned target of 4 million metric tons by the federal government.

Added to this, the food department borrowed Rs343.607 million from commercial banks to purchase rice, of which Rs33 million were lost due to corruption.

In order to ease the financial crunch, the Punjab government offered 54 state assets (agriculture, commercial and housing) for sale to raise Rs17 billion. The chief minister directed the chairman Punjab Privatisation Board to sell the assets by the end of June in order to provide some relief in upcoming budget. While the board has launched the privatisation process it seems unable to meet the target within the given time as real estate values are low, an official of the board said.

Nevertheless, a senior official of the finance department said that the government is optimistic that it would be able to end the year on good financial footing. He said that the next divisible pool payment is due and recovery from indigenous resources has improved which would help to close the fiscal year with a positive balance.

Kaira admitted that the Punjab government had availed overdraft throughout the year and blamed economic recession, smaller than expected share from the divisible pool and shortfall in revenue collection as causes for the poor financial position of the province.

Kaira added that the government gave Rs10 billion to bail out Bank of Punjab from the financial crisis caused due to the Harris Steel Mill loan.

However, the finance minister was optimistic that a balance between expenditures and revenue could be achieved by the end of the financial year and said that the next budget would be balanced.

Commenting on overdraft, he said it was a facility offered by the State Bank and that Punjab was within the limit.

Secretary finance Tariq Mehmood Pasha also said that the closing financial position of the province would be good while exact figures would be available in August when receipts from all the resources are reconciled.

Published in The Express Tribune, June 24th, 2010.

COMMENTS (5)

Meekal Ahmed | 13 years ago | Reply These guys are worse, much worse, than the federal government. I am sure other provinces do not fare better.
Umar Akram | 13 years ago | Reply Where are the khadim-alla's legendary management skills, his government is just running like a tyrants, nobody is telling the truth and he still thinks everything is fine but the province is in a state of total chaos. I believe the pml-n workers should stop sitting on talkshows and complain about the federal govt. and actually have a look at their government first. If they can't manage to run Pakistan's richest province which is now in loss thanks to them, how do they expect to run a country.
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